Economic Research | Country Risk Weekly Bulletin | Country Risk Weekly Bulletin 579 | Breach of regulatory limits on open foreign exchange positions is risk to financial stability in Egypt | Lebanon | Byblos Bank

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Byblos Bank

Country Risk Weekly Bulletin 579

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Breach of regulatory limits on open foreign exchange positions is risk to financial stability in Egypt

The International Monetary Fund considered that the Egyptian banking system is liquid, profitable and well capitalized, with limited and well-provisioned non-performing loans (NPLs). It indicated that the sector's capital adequacy ratio stood at 15.6% at end-June 2018, which is above the Basel-recommended floor of 9.875% and the Central Bank of Egypt's (CBE) mandated ratio of 11.875%. It also noted that the banks' non-performing loans ratio declined from 4.9% at the end of 2017 to 4.3% at end-June 2018. However, the IMF pointed out that some large state-owned banks have breached the regulatory limits on net open foreign exchange positions, which could weaken banking supervision, hinder financial stability, and may expose banks to exchange rate risks. As such, it welcomed the CBE's decision to strengthen the enforcement of regulatory rules on open foreign exchange positions and to penalize any bank that violates the limits. Further, the Fund noted that Egypt's two largest public banks are financially stable, but could require additional capital in the coming two years in case strong lending growth persists. It said that authorities are reviewing the National Investment Bank's operations and finances, given the bank's systematic importance, and will develop a plan with a revised mandate, business model and financial structure. It added that several smaller banks with below-average financial metrics require the CBE's continued monitoring.
Source: International Monetary Fund
 
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