Fitch Egypt Banking & Financial Services Report - 2020-03-09

Q2 2020
www.fitchsolutions.com
Egypt
Banking & Financial Servic
Services
es
Report
Includes 10-year forecasts to 2029
Egypt Banking & Financial Services Report | Q2 2020
Contents
Key View............................................................................................................................................................................................ 4
SWOT .................................................................................................................................................................................................. 7
Banking ............................................................................................................................................................................................. 8
Banking Snapshot ........................................................................................................................................................................................................................ 8
Egypt Credit Growth To Rise, But Interest Earnings Under Pressure....................................................................................................................... 9
Forecast Tables ............................................................................................................................................................................................................................12
Competitive Landscape ..........................................................................................................................................................................................................14
Regulatory Environment .........................................................................................................................................................................................................20
Insurance........................................................................................................................................................................................22
Insurance Snapshot...................................................................................................................................................................................................................22
Asset Management .....................................................................................................................................................................29

Asset Management Snapshot ...............................................................................................................................................................................................29
Stock Exchanges..........................................................................................................................................................................34
Stock Exchanges Snapshot ....................................................................................................................................................................................................34
Macroeconomic Forecasts........................................................................................................................................................38
Egypt Growth To Stay Strong In Next Two Years ...........................................................................................................................................................38
Macroeconomic Forecasts ....................................................................................................................................................................................................41
Household Income Forecasts................................................................................................................................................................................................42
Egypt Demographic Outlook....................................................................................................................................................43
Banking & Financial Services Methodology........................................................................................................................46
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Key View
Key View: A large population and improving macroeconomic conditions create a positive background for Egypt's fast-growing
banking and financial services sector. Consolidation and improved regulatory oversight in the banking sector have led to stronger
asset bases and declining levels of non-performing loans, while start-ups in the fintech sector are helping to broaden the reach of
formal banking services in what is still a largely cash-driven society. Credit growth is expected to strengthen owing to lower interest
rates and a boost in consumption, but profits are expected to be under pressure owing to monetary easing and inflation will remain
high. Demand for investment products and insurance remains relatively low; however, an emerging middle class and the
involvement of a greater number of overseas providers, those willing to navigate a somewhat risky business environment, will help
to drive uptake.
Egypt's banking sector is well developed and continues to record robust growth in terms of both assets and lending activity. While
the economic outlook in Egypt remains somewhat clouded by uncertainty following the currency flotation, this is abated by better
economic and political prospects and the ongoing support of the IMF. As a result, we continue to forecast growth in the banking
sector through to the end of the current forecast period in 2029, with assets and loan activity expected to increase steadily over the
next decade as banks reach more first-time users and credit services are diversified away from the current reliance on government
lending requirements.
The insurance industry in Egypt is still in the early stages of development, with low rates of penetration (premiums measured against
GDP) in both the life and non-life sectors, at 0.2% and 0.3% respectively in 2020. Cultural barriers continue to limit demand for
traditional insurance products, as does the limited household income rate for many Egyptian households. Despite these barriers, the
outlook for the insurance market is healthy. Carriers are gradually educating the large potential consumer base about the benefits
of cover, while employment and wage growth mean that affordability is improving. The focus will remain primarily on
basic mandatory lines.
Egypt has a low level of mutual fund penetration as an investment fund and the asset management sector remains concentrated
among a few companies. Most have been able to achieve growth despite an often volatile trading and investment environment.
Equity funds account for the largest share of asset management investment, although money market and balanced funds are
among the other investment tools available. Catering to the large Islamic finance sector, there are several tailored Islamic
investment funds operating in the market.
As in other sectors of the banking and financial services industry, activity on the Egyptian Stock Exchange (EGX) has seen significant
fluctuations. In a positive sign for the market as a whole, the government is planning to raise the proportion of market capitalisation
from 20% of GDP to 50-60% through initial pubic offerings (IPOs) of government-owned companies. While IPOs have seen
substantial delays, there are plans to list banks, insurance companies and engineering firms.
Loan Growth To Slow On Devaluation

Egypt - Loan & Deposit Growth
e/f = Fitch Solutions estimate/forecast. Source: CBE, Fitch Solutions
Latest Trends And Developments
• With only 10%-15% of the population holding a bank account (according to World Bank figures), financial inclusivity in Egypt is
limited. The central bank hopes to improve this by supporting fintech start-ups through a new EGP1bn (USD57mn) funding
programme. Companies such as Fawry have grown rapidly but are struggling to integrate technology with traditional banks.
• We maintain a positive outlook for credit growth in the Egyptian banking sector, and we forecast credit growth to accelerate to
8.0% in 2020 and 9.0% in 2021. This is mainly driven by falling interest rates and strengthening consumption.
• Egypt continues with plans to develop a comprehensive national health insurance system. The country is reportedly preparing a
memorandum of understanding with the Japan International Cooperation Agency regarding cooperation in the healthcare
system.
• Total gross premiums are expected to increase by 8.4% in 2020 to EGP30.1n (USD1.9bn), with the larger non-life segment
contributing more to this growth than the smaller life sector.
• EGX market capitalisation was EGP708.13bn as of the end of January 2020, a 0.02% decrease from the previous month. Banks
make up 23.8% of total market capitalisation, followed by non-banking financial services (11.6%) and real estate at 10.6%.
FINANCIAL SERVICES FORECASTS (EGYPT 2018-2023)

Indicator 2018e 2019e 2020f 2021f 2022f 2023f
Finance nominal GVA, USDbn 12.63 17.73 21.68 24.33 26.63 29.04
Finance USD nominal growth, % y-o-y 39.2 40.4 22.3 12.2 9.4 9.0
Finance nominal GVA, EGPbn 225.63 284.26 331.76 379.76 421.82 466.89
Finance EGP nominal GVA growth, % y-o-y 40.7 26.0 16.7 14.5 11.1 10.7
Finance nominal GVA, % total GVA 5.17 5.45 5.57 5.65 5.65 5.64
e/f = Fitch Solutions estimate/forecast. Source: National Statistics Office, Fitch Solutions
FINANCIAL SERVICES FORECASTS (EGYPT 2024-2029)

Indicator 2024f 2025f 2026f 2027f 2028f 2029f
Finance nominal GVA, USDbn 31.57 34.05 37.95 40.74 45.03 48.01
Finance USD nominal growth, % y-o-y 8.7 7.8 11.5 7.3 10.5 6.6
Finance nominal GVA, EGPbn 512.67 558.39 622.45 668.10 738.55 787.36
Finance EGP nominal GVA growth, % y-o-y 9.8 8.9 11.5 7.3 10.5 6.6
Finance nominal GVA, % total GVA 5.61 5.54 5.62 5.50 5.55 5.39
f = Fitch Solutions forecast. Source: National Statistics Office, Fitch Solutions
SWOT
SWOT Analysis
Strengths • Virtually all banks - and the commercial banking sector as a whole - have low loan-to-deposit ratios, and
banks are not reliant on wholesale funding from abroad.
• Most private sector banks emphasise their commitment to improving infrastructure, developing a brand or
introducing new products and services.
• We expect political risks to diminish following elections held in 2018. This relative stability will provide
support to banking sector growth.
• Elevated interest rates and a reliance on Treasuries for fiscal deficits provide a relatively stable source of
profitability for Egypt's banks.
Weaknesses • Relative to its counterparts elsewhere, the government has been slow to reform and privatise the remaining
state-owned commercial banks.
• There has been some progress in rationalising the commercial banking sector in that the number of banks
has decreased considerably in the last five years. Nevertheless, there are still dozens of small banks in what is
an overly fragmented market.
• Part of the reason why the loan-to-deposit ratios are so low is that banks have had difficulty in finding
attractive projects to finance, even though many of the smaller institutions appear to be policy lenders
rather than true commercial banks.
Opportunities • The commercial banking sector has long been an area of interest for internationally minded banks in the
rest of the Arab world. If the Egyptian government is serious about recapitalising, privatising and reforming
the sector, there are many well-funded allies to whom it can readily turn.
• As one of the most populous Muslim countries, Egypt is potentially a very important market for Islamic
banks and takaful operators over the long term.
• Improving employment and income rates should stimulate demand for a range of financial services,
including insurance and investment products.
Threats • Widespread poverty will continue to exclude a significant proportion of the potential consumer market.
• The sharp depreciation of the currency against the US dollar will see a marked fall in the US dollar value of
premiums, which will take years to recoup.
Banking
Banking Snapshot
Key View: We maintain a largely positive outlook for Egypt's banking sector. The market benefits from high levels of liquidity and
relatively low levels of non-performing loans, and the banking sector has benefitted from significant consolidation over recent years.
Efforts are being made to improve the inclusivity of formal banking services in the country, both in terms of individuals and private
businesses. This will help to lessen the reliance upon public sector demand, particularly in terms of government loans and securities.
Credit growth is also expected to strengthen, and we forecast client loan growth at 8.0% in 2020 and 9.0% in 2021.
• We maintain a positive outlook for credit growth in the Egyptian banking sector, and we forecast credit growth to accelerate to
8.0% in 2020 and 9.0% in 2021. This is mainly driven by falling interest rates and strengthening consumption.
• The Central Bank of Egypt has drafted new legislation aimed at improving oversight of the cyrptocurrency sector. The new
banking law makes licenses for creating, advertising or operating trading/issuing platforms mandatory.
• Bank Audi Egypt has announced the acquisition of the National Bank of Greece's holdings in Egypt. The group is now
applying for approval from the central bank to complete the acquisition and is continuing with plans to open new branches in
the country.
Total Banking Assets

Egypt - Total Banking Assets (2018-2029)
Egypt Credit Growth To Rise, But Interest Earnings Under Pressure

Key View:
• Egypt’s credit growth will likely recover over the coming quarters from the latest, November 2019 reading of 4.7% year-on-year.
We at Fitch Solutions expect banks’ loan books to expand by 8.0% in 2020 and 9.0% in 2021.
• Monetary easing combined with stronger consumer and business demand should help drive loan growth in the short term.
• That said, profits will likely come under pressure compared to recent years on monetary easing and still-elevated inflation.
Headline credit growth at Egyptian commercial banks slumped in H219. Banks’ loan books grew by 4.7% year-on-year (y-o-
y) at the latest reading in November 2019. While down sharply from the 22.4% y-o-y recorded at the start of the year, the
deceleration was largely due to a sustained drop in Q219, with decent month-on-month growth seen in the months since (see
chart below). Looking at the figures in CPI-adjusted terms also reveals how lower inflation (from 21.9% y-o-y in December 2017 to
7.1% in December 2019) has dragged on the headline figure, while real credit growth has been relatively stable - if perhaps quite
muted.
Lending Slump Partly An Inflation Story

Egypt - Commercial Banks' Client Loans
Source: CBE, Fitch Solutions
We expect loans books to grow at a healthier pace in 2020 and 2021, however, at 8.0% and 9.0% respectively. Egypt
continues to post quite healthy real GDP growth rates – the latest reading, in Q319, stood at 5.6% y-o-y, a rate that we expect will be
sustained in the next 1-2 years. This will be strongly positive for banks’ balance sheet growth. Much of the economic growth is
driven by debt-fuelled government spending, which is evident in banks’ robustly expanding bond portfolios (13.1% y-o-y in
November). We are also seeing consumer credit demand rising at a robust pace – total household loans were up 22.8% y-o-y in
November. Only business loans are lagging behind, being roughly flat in inflation-adjusted terms, which mirrors firms’ persistently
weak business sentiment – Egypt’s PMI readings only scraped above 50, the level demarcating expansion from contraction, in two
months in 2019.
Easing Lending Conditions To Support Loan Growth

Egypt - Bank Lending Rate And Central Bank Key Policy Rate, %
Continued monetary easing, however, should progressively help ameliorate this situation and boost overall demand. Egypt’s
average retail lending rate (on loans with a one-year maturity or less, the only rate reported by the authorities) stood at 13.8% in
December, 400 basis points (bps) lower than a year before, thanks to policy rate cuts of a similar magnitude by the Central Bank of
Egypt (CBE). We expect further cuts to take place over the course of 2020, forecasting 150bps - taking the overnight lending rate to
11.75% - following 450bps of cuts in 2019. This will be followed by 100bps of easing in 2021.
Normalising Net Interest Margins To Limit Profits

Egypt - Net Interest Margin, PP
Note: Difference between rate on 6-12 month deposits and that on loans with maturity of one year or less. Source: CBE, Fitch Solutions
That said, monetary easing will also weigh on profitability. Egyptian banks have enjoyed quite healthy net interest margins
(NIMs) over the last 2-3 years thanks to tight monetary policy, at least in nominal terms (see chart above). NIMs have been
considerably less impressive in real terms, although they managed to scrape into positive territory in Q419. We do not see much
scope for real NIMs to stay positive in the short term, however, given that we expect the CBE to cut interest rates faster than we
expect inflation to fall. Nominal NIMs will similarly take a hit from further easing, continuing the trend seen since 2017 (see chart
above). This suggests that banks’ return on assets will remain flat or fall slightly (having stood at 1.4% in FY2018). Moreover, a new
banking law currently under discussion in parliament will likely force many banks to increase their capitalisation levels - quite
substantially so in some cases. This, in combination with slow profit growth, will likely keep the sector’s overall return on equity
(which stood at a substantial 19.2% in FY2018) under pressure as well.
KEY BANKING FORECASTS (EGYPT 2018-2024)

Indicator 2018 2019e 2020f 2021f 2022f 2023f 2024f
Total assets, EGPmn 5,432,657 5,758,616 6,161,719 6,593,039 7,054,552 7,548,371 8,076,757
Total assets, % y-o-y 12.9 6.0 7.0 7.0 7.0 7.0 7.0
Client loans, EGPmn 1,801,975 1,892,073 2,043,439 2,227,349 2,450,084 2,670,591 2,884,239
Client loans, % y-o-y 24.0 5.0 8.0 9.0 10.0 9.0 8.0
Client deposits, EGPmn 3,802,591 3,992,720 4,152,429 4,401,575 4,753,701 5,181,534 5,647,872
Client deposits, % y-o-y 14.2 5.0 4.0 6.0 8.0 9.0 9.0
Loan/deposit ratio 47.39 47.39 49.21 50.60 51.54 51.54 51.07
Loan/asset ratio 33.17 32.86 33.16 33.78 34.73 35.38 35.71

Banking Sector Structural Characteristics
Funding Sources: Over half of deposits are sourced in local currency from households and 16.3% from the government. Although
the CBE is in the midst of a monetary easing cycle, which will weigh on deposit growth, we maintain that its pace of rate cutting will
be gradual, precluding a sharp reduction in funding availability for banks. Moreover, over a longer time horizon we believe that rising
levels of financial inclusion will offer banks ample opportunities for organically increasing their funding base. Only 16.0mn debit
cards existed in Egypt as of Q219 compared to an adult population of about 61mn, suggesting a large untapped client base.
FX Exposure: Egyptian banks have limited exposure to currency risks, with foreign assets accounting for less than 10% of the total.
Following the liberalisation of the pound in November 2016, we also expect the unit to remain largely stable in the years ahead,
further lowering the likelihood that local banks experience any substantial FX-related instability.
Capital Adequacy: The overall capital adequacy ratio of Egyptian banks has improved steadily despite the wider economy’s
difficulties of recent years, from 14.0% in December 2016 to 18.1% in September 2019. According to the IMF, all of the country's
largest banks remain fairly well capitalised, above the CBE's prudential requirement. Many smaller banks are reported to be less
insulated against potential shocks - however, tightened capital requirements are on the horizon through a draft banking law
currently passing through parliament. This could see smaller banks with low capitalisation levels being acquired by large entities in
the next few years.
Forecast Tables
ASSETS FORECASTS (EGYPT 2018-2023)
Indicator 2018 2019e 2020f 2021f 2022f 2023f
Total assets, EGPmn 5,432,657 5,758,616 6,161,719 6,593,039 7,054,552 7,548,371
Total assets, USDmn 304,098 359,239 402,726 422,468 445,360 469,493
Total assets, % of GDP 122.4 108.2 101.3 95.7 92.7 89.3
Total assets, % y-o-y 12.9 6.0 7.0 7.0 7.0 7.0
Client loans, EGPmn 1,801,975 1,892,073 2,043,439 2,227,349 2,450,084 2,670,591
Client loans, USDmn 100,867 118,033 133,558 142,723 154,676 166,105
Client loans, % of GDP 40.6 35.5 33.6 32.3 32.2 31.6
Client loans, % y-o-y 24.0 5.0 8.0 9.0 10.0 9.0
Client loans, USD per capita 1,024 1,175 1,305 1,368 1,457 1,537
Client loans, % of total assets 33.2 32.9 33.2 33.8 34.7 35.4
ASSETS FORECASTS (EGYPT 2024-2029)
Total assets, EGPmn 8,076,757 8,642,130 9,247,079 9,894,375 10,537,509 11,169,760
Total assets, USDmn 497,384 526,931 563,816 603,284 642,497 681,047
Total assets, % of GDP 86.2 83.5 81.2 79.0 76.5 73.7
Total assets, % y-o-y 7.0 7.0 7.0 7.0 6.5 6.0
Client loans, EGPmn 2,884,239 3,114,978 3,364,176 3,633,310 3,923,975 4,237,893
Client loans, USDmn 177,617 189,927 205,122 221,531 239,254 258,394
Client loans, % of GDP 30.8 30.1 29.5 29.0 28.5 28.0
Client loans, % y-o-y 8.0 8.0 8.0 8.0 8.0 8.0
Client loans, USD per capita 1,616 1,699 1,806 1,920 2,041 2,171
Client loans, % of total assets 35.7 36.0 36.4 36.7 37.2 37.9
LIABILITIES FORECASTS (EGYPT 2018-2023)
Indicator 2018 2019e 2020f 2021f 2022f 2023f
Total liabilities and capital, EGPmn 5,432,657 5,758,616 6,161,719 6,593,039 7,054,552 7,548,371
Total liabilities and capital, USDmn 304,098 359,239 402,726 422,468 445,360 469,493
Total liabilities and capital, % of GDP 122.4 108.2 101.3 95.7 92.7 89.3
Total liabilities and capital, % y-o-y 12.9 6.0 7.0 7.0 7.0 7.0
Client deposits, EGPmn 3,802,591 3,992,720 4,152,429 4,401,575 4,753,701 5,181,534
Client deposits, USDmn 212,853 249,078 271,400 282,043 300,105 322,280
Client deposits, % of GDP 85.7 75.0 68.3 63.9 62.4 61.3
Client deposits, % y-o-y 14.2 5.0 4.0 6.0 8.0 9.0
Client deposits, USD per capita 2,162 2,481 2,652 2,705 2,827 2,983
Client deposits, % of total liabilities 70.0 69.3 67.4 66.8 67.4 68.6
LIABILITIES FORECASTS (EGYPT 2024-2029)

Total liabilities and capital, EGPmn 8,076,757 8,642,130 9,247,079 9,894,375 10,537,509 11,169,760
Total liabilities and capital, USDmn 497,384 526,931 563,816 603,284 642,497 681,047
Total liabilities and capital, % of GDP 86.2 83.5 81.2 79.0 76.5 73.7
Total liabilities and capital, % y-o-y 7.0 7.0 7.0 7.0 6.5 6.0
Client deposits, EGPmn 5,647,872 6,099,702 6,587,678 7,114,692 7,612,721 8,069,484
Client deposits, USDmn 347,808 371,913 401,666 433,800 464,166 492,016
Client deposits, % of GDP 60.3 58.9 57.8 56.8 55.3 53.2
Client deposits, % y-o-y 9.0 8.0 8.0 8.0 7.0 6.0
Client deposits, USD per capita 3,165 3,328 3,537 3,760 3,961 4,134
Client deposits, % of total liabilities 69.9 70.6 71.2 71.9 72.2 72.2
KEY RATIOS FORECASTS (EGYPT 2018-2029)
Indicator 2018 2019e 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f 2029f
Loan/deposit ratio 47.39 47.39 49.21 50.60 51.54 51.54 51.07 51.07 51.07 51.07 51.54 52.52
Loan/asset ratio 33.17 32.86 33.16 33.78 34.73 35.38 35.71 36.04 36.38 36.72 37.24 37.94
Competitive Landscape
The Egyptian banking sector is one of the oldest in the Middle East and North Africa region. The Nasser regime in the 1950s
concentrated the industry into four state-owned banks, but in the 1970s the Sadat era opened the sector to private lenders under
Law 120 of 1975. In the 1980s and 1990s, the number of specialised, commercial and investment banks grew, and central bank
policy helped create a more favourable lending environment. However, this growth fuelled an unsustainable rise in non-performing
loans (NPLs), prompting a reform process from 2003 that has consolidated banks and reduced the number from 61 in 2004 to 37
by 2020.
The consolidation process carried out over the past 15 years put the banking sector in a strong position to deal with the 2008
global financial crisis and the domestic political crisis in 2011. There are 37 banks in Egypt with almost 4,000 branches nationwide.
The banking density is 23,400 per branch. According to the Union of Arab Banks (UAB), Islamic banks in Egypt have a total of 3mn
customers, accounting for 18.7% of the country's banking clients.
Depreciation of the Egyptian pound against the US dollar has challenged the sector. While asset growth has been strong in local
currency terms, inflation and depreciation have undermined the attractiveness of the sector to foreign investors, although expected
exchange rate stability should ensure renewed interest.
The National Bank of Egypt (NBE), Bank Misr and Banque Du Caire are large public sector banks which control around 40% of
the banking sector. The two biggest private banks are the Commercial International Bank (CIB) and the Qatar National Bank
(QNB), which operates in Egypt as QNB Alahli following its acquisition of National Société Générale Bank in March 2013, giving
it 160 branches.
As a result of reforms, the Egyptian banking sector is relatively liberalised and hosts a number of foreign banks. Barclay's sold its
operations in Egypt - comprising more than 50 branches - to Morocco-based Attijariwafa Bank in October 2016, ending an
involvement in Egypt that originally began in 1864. HSBC has developed a network of more than 100 branches since it set up a
presence in Egypt in 1982, making it the most prominent of the international players on the Egyptian market. However, it is the Gulf
Cooperation Council-based banks that have come to be the most significant force, starting in earnest with UAE-based Emirates
NDB's acquisition of BNP Paribas's entire 95.2% stake in BNP Paribas Egypt in December 2012. This was followed by QNB's
entry into the market and Kuwait-based Al Ahli Bank's acquisition of Piraeus Bank's Egyptian subsidiary with 39 branches in
August 2015.
TOP 10 COMMERCIAL AND RETAIL BANKS BY TOTAL ASSETS, USDMN
Total Common
Total Assets Total Weighted Risks Date
Equity
31/12/
National Bank of Egypt 1,601,614 743,865 100,310
2018
30/06/
Banque MISR 884,067 431,068 65,034
2018
31/12/
Commercial International Bank (Egypt) 386,742 199,450 51,880
2019
31/12/
QNB ALAHLI Bank 273,014 172,951 35,303
2019
30/09/
Banque Du Caire 185,828 91,249 13,846
2019
Bank of Alexandria 101,330 45,218 10,553 30/09/
Total Common
Total Assets Total Weighted Risks Date
Equity
2019
30/09/
Faisal Islamic Bank of Egypt 98,776 52,954 12,773
2019
30/09/
Bank Audi 71,735 na 6,851
2019
30/09/
National Bank of Kuwait - Egypt 69,320 48,675 7,535
2019
30/09/
Egyptian Gulf Bank 65,710 26,653 4,332
2019
Note: Data are latest available. Source: Company reports, Fitch Solutions
The NBE is a public sector bank that is the oldest and largest commercial bank in the country. As of end 2018 the bank had total
assets worth more than USD1.6trn, putting it well ahead of any rival. Prior to the establishment of the Central Bank of Egypt in 1961,
NBE acted as the country's central bank. It was the last of Egypt's public banks to bring in management from the private sector and
has historically been burdened by bureaucracy and political commitments. However, following an overhaul it is now considerably
stronger.
NBE is aiming to increase the size of its loans portfolio for small- and medium-sized enterprises (SMEs) to EGP100bn by 2021, from
EDP37.5bn (USD2.1bn) in 2017, with around 59,000 clients. In 2017 industrial projects represented 28% of allocated funding for
SMEs, compared with 14% in 2016, with 75-80% of the SME loan portfolio directed to productive sectors. The bank was also aiming
to hike the size of its microfinance portfolio to EGP4bn by the end of 2020, from EGP3.5bn at end Q118.
Like many public sector banks in North Africa, the NBE has traditionally had a relatively high NPL ratio, partly owing to its role as a
public lender without the bottom line pressures of private banks. However, it has improved this considerably in recent years owing
to banking sector reform efforts. In 2018 it had an NPL ratio of just 1.7%, while reserves covered just under 245% of the level of
NPLs, ensuring the bank's financial stability.
By end June 2017 the bank had achieved a market share of 31%. In FY2016/17, the bank's total financial position reached
EGP13.65bn, marking growth of 94%. The total portfolio of deposits stood at EGP861.6bn at the end of June 2017, while the total
loan portfolio stood at EGP400.6bn, with loans to major companies of EGP325.4bn, EGP35.7bn for SME loans and EGP39.5bn for
retail banking loans. Its financial viability and its market competitiveness revealed that the bank's accumulated reserves and
retained earnings were used to increase capital from EGP30bn to EGP50bn. This led to an increase in equity to reach more than
USD100.3bn by the end of 2018, a growth rate of 54% compared with the end of the previous fiscal year.
TOP 10 BANKS - ASSET QUALITY
Growth of Reserves for NPL Charges

NPL Ratio
Gross Loans NPLs (% of (% of gross Date
(%)
(%) NPLs) loans)
National Bank of Egypt 17.6 1.7 279.2 1.2 31/12/2018
Banque MISR 22.6 2.9 124.1 0.6 30/06/2018
Commercial International Bank (Egypt) 9.9 4.0 224.7 1.2 31/12/2019
QNB ALAHLI Bank 11.9 2.8 162.9 0.5 31/12/2019
Banque Du Caire 14.7 4.0 150.1 1.2 30/09/2019
Bank of Alexandria 2.1 5.4 117.1 -0.5 30/09/2019
Faisal Islamic Bank of Egypt 20.0 9.9 84.0 -0.6 30/09/2019
Bank Audi -16.7 na na 0.5 30/09/2019
National Bank of Kuwait - Egypt -22.2 2.3 104.9 0.1 30/09/2019
Egyptian Gulf Bank -10.1 4.0 109.6 0.8 30/09/2019
Banque Misr (BM) and Banque du Caire (BDC) were the second and third largest state-owned commercial banks in Egypt when
they were merged at the end of 2006. The merger was a part of the government's plan to streamline the commercial banking
sector and improve its efficiency. Press reports in 2006 suggested that the combined entity arising from the merger of
BM and BDC had total assets of about EGP160bn, making it about the same size as the NBE, the largest bank in the country.
The planned demerger and privatisation of BDC in mid-2008 came to nothing when the banks that showed interest were unwilling
to meet the government's asking price. The government cancelled the auction in June 2008, apparently because none of the five
bidders (National Bank of Greece, Standard Chartered, Samba, Mashreqbank and a Jordanian/Saudi consortium) were
prepared to pay the USD1.6bn the government wanted for a 67% stake.
Since the global financial crisis, the privatisation has been postponed indefinitely, and both BM and BDC maintain their operational
independence. BM had total assets of USD884bn at the end June of 2018, making it Egypt's second biggest bank, while BDC was in
fifth place with USD185.8bn in assets at the end of Q319. The two banks' combined assets are still only around two-thirds of NBE's
total assets.
In 2009 EGP5.5bn of debts from state companies were repaid to BM, cutting its stock of bad loans. Previously, BM was 'virtually
bankrupt', according to vice chair Mohamed Ozalp. The repayment was part of the government's efforts to clean up state banks and
enable the bank to improve its provisioning. The lender's management was able to settle debts of its portfolio as well as the portfolio
it acquired from the BDC during the period from January 2003 until the end of June 2011, which was worth EGP53.2bn. The total of
receivables reached EGP27.7bn, with a payment rate of up to 87% of the value to be paid, according to the rescheduling
agreements. By June 2018 BM had an NPL ratio of just 2.9%, with reserves covering 124.1% of NPLs, while gross loans rose by
22.6% y-o-y, indicating both the high quality of assets and strong growth.
In February 2016, BM signed a USD100mn loan with the China Development Bank (CDB). The five-year loan deal offers a two-year
grace period as the payment will start as of the third year. The loan will contribute to boosting BM's dollar resources as well as
financing strategic projects in Egypt. This deal signals the keenness of the Chinese bank, which has a representative office in Cairo,
to boost cooperation with Egyptian banks in all the fields. CDB provides an opportunity for developing countries, including Egypt, to
diversify their resources of financing and expertise in SME projects.
The CDB loan was followed in November 2017 with a USD75mn loan agreement between BM and the European Bank for
Reconstruction and Development (EBRD) to support SMEs. The EBRD credit line to BM will enable it to reach out to new clients and
regions outside the Greater Cairo region and Alexandria. Under the agreement the EBRD will provide a technical assistance package
to support BM to strengthen its skill sets and competitiveness in SME lending. This was followed in May 2018
by BM mandating Citigroup to arrange a USD500mn syndicated loan.
TOP 10 BANKS - EARNINGS AND PROFITABILITY

Net Operating
Operating Net Income
Interest Expenses Profit (% of
Profit (% of (% of
Income (% (% of gross risk- Date
average average
of earning revenues) weighted
assets) equity)
assets) assets)
31/12/
National Bank of Egypt 3.3 30.7 2.1 4.3 20.0
2018
30/06/
Banque MISR 1.3 36.9 1.2 2.2 6.2
2018
31/12/
Commercial International Bank (Egypt) 6.6 22.7 4.6 8.3 27.5
2019
31/12/
QNB ALAHLI Bank 5.8 22.4 4.4 6.6 27.1
2019
30/09/
Banque Du Caire 5.1 38.4 2.9 5.7 32.7
2019
30/09/
Bank of Alexandria 6.7 36.9 4.6 9.8 32.9
2019
30/09/
Faisal Islamic Bank of Egypt 5.3 24.7 3.8 6.9 22.9
2019
30/09/
Bank Audi 4.5 40.0 2.8 na 22.2
2019
30/09/
National Bank of Kuwait - Egypt 4.9 26.8 4.1 5.9 32.7
2019
30/09/
Egyptian Gulf Bank 3.4 46.9 1.5 3.7 16.1
2019
Note: Data are latest available. na = not available. Source: Company reports, Fitch Solutions
BDC has 235 branches throughout Egypt, serving around 3.8mn customers. Since its failed privatisation attempt, the BDC has
sought to expand by providing credit for infrastructure and energy projects as well as microfinancing, an area that the bank has
come to dominate. In February 2017, the Egyptian Exchange (EGX) announced that it had accepted BDC's application to list its
shares in the EGX with capital of EGP225.0mn. This would be distributed across 562.5m shares. The listing will help the bank
increase its capital by 20%.
TOP 10 BANKS - CAPITAL AND LEVERAGE
Tangible Net Income

Common Equity Minus Cash
Date
(% of tangible Dividends (% of
assets) total equity)
National Bank of Egypt 6.3 20.9 31/12/2018
Banque MISR 7.3 6.3 30/06/2018
Commercial International Bank (Egypt) 13.3 34.5 31/12/2019
QNB ALAHLI Bank 12.8 29.7 31/12/2019
Banque Du Caire 7.3 36.3 30/09/2019
Bank of Alexandria 10.3 31.1 30/09/2019
Faisal Islamic Bank of Egypt 12.9 23.4 30/09/2019
Bank Audi 9.2 21.6 30/09/2019
National Bank of Kuwait - Egypt 10.7 35.1 30/09/2019
Egyptian Gulf Bank 6.6 17.7 30/09/2019
The largest private bank in Egypt, Commercial International Bank (CIB), is also the country's third largest in terms of assets,
which totalled USD386.7bn by the end of 2019. CIB was formed in 1975 as a joint venture, Chase National Bank. It gained its
current name after Chase Manhattan divested its stake in 1987. In 1993 it staged the country's largest IPO, which generated
EGP390mn, and by the late 1990s was the first Egyptian bank with an investment grade rating from the leading credit ratings
agencies. Institutional lending represents 82.3% of total loans, with the rest comprising retail customers and SMEs. Consumer
banking represents nearly three-quarters of deposits, while institutional banking makes up the rest. It has a total of 192 branches
and units, over half of which are in Cairo.
In June 2019, CIB reported just 2.7% growth in gross loans, but had a relatively high NPL ratio of 5%. Although asset quality was
poorer than the state-owned banks, reserves represent 199.9% of NPLs, which are more than sufficient to absorb any financial
crisis. The management had targeted a minimum of 20% lending growth in 2018, along with a low cost deposit accumulation in
order to build the appropriate funding base for growth, but has undershot this amount.
Like BM, it is attracting finance to support loan extension to the SME sector. In November 2017, the EBRD announced that it is
providing a subordinated loan of up to USD100mn to CIB to strengthen its capital base and support the growth of the bank's
lending in Egypt. The subordinated loan qualifies as Tier II capital. It is the second time under the new regulations that a third-party
lender is providing a loan of this kind to an Egyptian bank.
TOP 10 BANKS - FUNDING AND LIQUIDITY

Interbank
Loans (% of Customer
Assets (% of
customer Deposits (% of Date
interbank
deposits) total funding)
liabilities)
National Bank of Egypt 49.1 212.9 74.9 31/12/2018
Banque MISR 34.2 338.9 83.9 30/06/2018
Commercial International Bank (Egypt) 43.1 245.4 95.3 31/12/2019
QNB ALAHLI Bank 77.3 54.4 90.6 31/12/2019
Banque Du Caire 50.4 278.3 89.8 30/09/2019
Bank of Alexandria 48.4 13,398.1 99.0 30/09/2019
Faisal Islamic Bank of Egypt 13.5 45,351.9 99.9 30/09/2019
Bank Audi 43.3 3,104.8 97.5 30/09/2019
National Bank of Kuwait - Egypt 54.6 913.2 92.8 30/09/2019
Egyptian Gulf Bank 42.5 945.6 95.0 30/09/2019
Regulatory Environment
Egypt's banking regulation is based on Law 88 of 2003, The Law of The Central Bank, The Banking Sector And Money, which placed
the Central Bank of Egypt (CBE) under presidential control and gave it the responsibility to implement monetary policy and regulate
and license banks. All banks in Egypt are subject to supervision by the CBE, with the exception of the Arab International Bank,
Nasr Social Bank and the National Investment Bank, which are exempt owing to special provisions in law and treaty.
Since 2003 the banking sector has undergone two phases of reform, largely in response to the non-performing loan (NPL) crisis
that emerged in the 1990s. The first phase (2004-2008) was aimed at privatising and consolidating the banking sector, reducing
NPLs, restructuring state-owned banks and upgrading banking supervision. This included increasing minimum capital requirements,
higher capital adequacy ratios and a stricter provisioning requirement, moves that led to increased merger and acquisition activity.
The second phase (2009-2012) involved the implementation of Basel II, continued restructuring of state-owned banks and
developing financial services for small- and medium-sized enterprises. The political turbulence that followed the Arab Spring of
2011 put the reform process on hold, but efforts are now under way to bolster the power and independence of the CBE, with a view
to improving governance in the banking system.
In 2016 the CBE was completing the second pillar of Basel II regulations and making progress towards Basel III. Up to 2019,
domestic banks saw a further tightening of the capital requirements, including an increase of the capital conservation buffer to
2.5% and the full implementation of liquidity controls with the objective of 100% liquidity coverage ratio.
In July 2017, a new banking law, which includes 170 articles divided into six branches, was drafted to regulate the Egyptian banking
sector and the central bank. It was passed after the cabinet approved it in November 2017; it was also reviewed by the IMF and
World Bank. The law was reviewed once again in May 2019 and some amendments were made, with the law now including 240
articles. This gives the CBE greater surveillance powers on money exchange and money transfer, credit risk guarantee institutions,
credit granting entities, credit rating companies, and service outsourcing companies as well as companies and agencies working in
the field of payment systems and services.
Licence and bank supervision fees would also rise 10-fold to EGP100,000 for head offices and EGP50,000 for individual branches
and agencies, with the CBE given the discretion to raise or lower this amount by up to 25%. Proceeds will be put into a special fund
used at the discretion of the CBE governor. Other articles include raising banks' minimum capital to EGP1.5bn from EGP500mn
under the current law No. 88 of 2003. The new law increases the capital of exchange companies and credit inquiry companies from
EGP5mn to EGP20mn and increases the capital of money transfer companies from EGP5mn to EGP10mn.
The legislation also sets out the powers and duties of bank CEOs to prevent conflicts of interest and nepotism. The governor and the
board of directors are not allowed to be members of a political party, members of bodies subject to the banking law or Egyptian
Financial Supervisory Authority's monitoring, or members of the government, with the exception of a representative from the
Ministry of Finance. Significant powers granted by the new bank law to the central bank governor, including the right to nominate
presidents and boards of public banks, the power to approve branches and the determination of the term of the heads of banks,
have been controversial.
The supporters of the reform say that it moves Egypt towards international banking practices and ensures proper power transfer in
the banking sector. However, opponents claim that it concentrates a high level of power in the hands of the central bank governor.
They are also concerned with the CBE monitoring non-banking financial activities.
The reforms put the central bank on a collision course with industry leaders. Under the highly contentious Article 109 of the new
law, most banking leaders will be required to leave their positions as the law stipulates that the chair of any bank must not have
been an employee or a major shareholder in the three years prior to the law's enactment. Most exchange companies are also likely
to shut down as they tend to have capital of less than EGP5mn. Bankers have also voiced concern about the new law's stipulation
that the central bank has the right to choose a representative to attend the meetings of the board of directors of any bank without
an invitation, which they regard as intrusive and only necessary for banks in distress.
Article 109 attempts to resolve problems of governance and corruption caused by indefinite terms for bank CEOs with almost
absolute power, as well as the need to bring in new, younger leadership that has a better grasp of technological change in the
contemporary banking industry. However, the power of the CBE to intervene in the appointment of bank leaders goes beyond the
provisions in the recommendations of the OECD and Basel and may not address either governance or competence.
Another area that could face challenges is the power of the central bank governor and the lack of checks and balances, particularly
in relation to the levying of licence fees and the use of proceeds. The creation of a fund under the governor's sole control, with little,
if any, transparency and monitoring, creates an opportunity for corruption.
Article 21, which allows the central bank to participate in the monitoring of non-banking financial sector activities, puts it in potential
conflict with the General Authority for Financial Supervision. Overlapping powers over activities in capital markets could necessitate
a revision of the article or greater clarification.
Insurance
Insurance Snapshot
Key View: The growth outlook for Egypt's insurance industry remains positive, although inflation is undoubtedly playing a role in
the high single digit growth recorded in local currency terms. In the non-life sector, growth will be led by surging property and motor
insurance premiums, with motor insurance remaining the leading product. Efforts to reach more first time users as well as improved
affordability will also help to drive demand in the underdeveloped life insurance sector.
Insurance Premiums
Egypt - Insurance Premiums By Sector (2018-2029)
e/f = Fitch Solutions estimate/forecast. Source: EFSA, Fitch Solutions
• After two years of high levels of price growth, consumer price inflation will gradually slow in Egypt over the next few years, with
our Country Risk team forecasting average inflation of 6.8% over the coming decade, compared with a peak of 29.6% in 2017
and 14.4% in 2018.
• This will result in more sedate, although still positive, growth in the insurance market, with growth slowing from 27% in 2017 to
an average of 8.1% per year to the end of the forecast period in 2024. The market will achieve growth in real terms owing to
anticipated improvements to household spending levels as well as efforts by insurers to expand product ranges and distribution
channels.
• Total gross premiums are expected to increase by 8.4% in 2020 to EGP30.1n (USD1.9bn), with the larger non-life segment
contributing more to this growth than the smaller life sector.
GROSS INSURANCE PREMIUMS WRITTEN (EGYPT 2018-2023)

Indicator 2018e 2019e 2020f 2021f 2022f 2023f
Total gross premiums written, EGPbn 25.61 27.75 30.08 32.60 35.15 37.97
Total gross premiums written, EGP, % y-o-y 6.8 8.3 8.4 8.4 7.8 8.0
Gross life premiums written, EGPbn 10.86 11.44 12.08 12.75 13.42 14.15
Gross life premiums written, EGP, % y-o-y 6.4 5.3 5.6 5.6 5.3 5.4
Gross non-life premiums written, EGPbn 14.76 16.31 18.00 19.85 21.72 23.82
Gross non-life premiums written, EGP, % y-o-y 7.1 10.5 10.4 10.3 9.4 9.7
e/f = Fitch Solutions estimate/forecast. Source: EFSA, Fitch Solutions
GROSS INSURANCE PREMIUMS WRITTEN (EGYPT 2024-2029)
Total gross premiums written, EGPbn 40.99 44.24 47.57 51.23 55.16 59.43
Total gross premiums written, EGP, % y-o-y 8.0 7.9 7.5 7.7 7.7 7.8
Gross life premiums written, EGPbn 14.85 15.64 16.37 17.24 18.14 19.07
Gross life premiums written, EGP, % y-o-y 5.0 5.3 4.6 5.3 5.2 5.1
Gross non-life premiums written, EGPbn 26.13 28.60 31.21 33.99 37.02 40.36
Gross non-life premiums written, EGP, % y-o-y 9.7 9.4 9.1 8.9 8.9 9.0
f = Fitch Solutions forecast. Source: EFSA, Fitch Solutions
The Egyptian insurance market is dominated by Misr Insurance Company (MIC), which accounts for more than half of gross
premiums written in the non-life segment and more than a third in the life sector. All other insurers have a market share of less than
6% each. Misr benefits significantly from state backing as well as from a long-established branch network spanning the country. We
expect Misr to remain under state control for the foreseeable future and to retain its strong position in the sector.
The government is moving ahead with plans to list Misr Life, along with MIC, on the Egyptian Exchange (EGX). In May 2018, at an
extraordinary general assembly meeting of the state-run Misr Insurance Holding Co., plans for the initial public offering
(IPO) were outlined. This forms part of the plans to list 23 state companies for the first phase of the state IPO programme, with total
share value of EGP80.0bn (USD4.47bn). The size of the offering in the insurance companies and the schedule for the IPO is unclear
at the time of writing, and we caution that there is significant risk of delays in the plans. Nevertheless, a capital injection and
investment by the private sector could help transform the company's life and non-life operations, leading to improved capacity and
a more diverse offering of insurance products.
Life Insurance
The Egyptian life sector is poorly developed with a low level of public awareness. The range of products is fairly basic, with little
product innovation among the leading insurers to date. With interest unlikely to grow significantly, we expect insurers to continue to
offer little beyond these basic policy areas. This is particularly the case for indigenous players such as Misr Life, the market leader, as
they lack the kind of expertise that is enjoyed by multinational players in the sector.
The competitive landscape of Egypt's life segment is completely different to that of its non-life segment. Misr Life, the relevant
element of Misr Insurance Holdings, consistently has a market share of roughly 37%, which was nearly the same as the combined
market shares of Allianz Life and MetLife. This offers a more dynamic marketplace than the non-life sector, which is more
dominated by the non-life operations of Misr. Ultimately, this should benefit consumers through both product innovation and price
competition, but owing to limited demand, this has yet to materialise in any meaningful way. The company benefits significantly
from state backing as well as from a long-established branch network spanning the country.
In Q118 a new life insurance product was announced targeted at lower-income groups. Aman works as a partnership between Misr
Life and local banks and includes casual labourers, farmers and working single mothers. One certificate is worth EGP500 and
individuals can buy up to five certificates. In the event of the natural death of the policyholder, beneficiaries may receive a maximum
of EGP50,000 in life insurance payments if the insured had bought five certificates. In the event of an accident, they will receive up
to EGP250,000. The entire amount can be cashed in one amount or provided as a monthly pension of EGP1,000-3,000 for five-
to-10 years, depending on the number of certificates held.
The introduction of the Aman scheme came after Misr signed an agreement in June 2017 with the National Bank of Egypt (NBE)
to provide insurance worth EGP23bn to 500,000 of its customers. We expect Misr to remain under state control for the foreseeable
future and to retain its strong position in the sector, with continued market share well in excess of 30% likely to persist over the next
10 years.
Allianz Life is the second largest insurer operating in Egypt's life sector, with a market share of just under 19%. By the standards of
Allianz, one of the largest global insurers with a presence across effectively all key markets, these operations are small. However,
the potential for the sector to grow as a large and expanding population gradually becomes richer and more aware of the benefits
of long-term savings and insurance products is of evident interest to Allianz. Similarly, the local operations of MetLife are currently
insignificant by their global standards, but over the next 15-to-20 years, an established brand presence is likely to reap significant
rewards.
Misr appears to have consolidated its control over Egypt's life insurance market in more recent years, even if formal data for the key
players in the market remain patchy. The deputy chairman of Misr, Basel El-Hini, claimed in a June 2015 interview with Egypt Daily
News that his firm maintained a market share of 60% across all sectors. However, global major AXA has made some inroads
following approval of its acquisition of Commercial International Life Insurance by the Egyptian Financial Supervisory Authority
(EFSA) in November 2015. AXA's presence in Egypt, under the auspices of AXA Investment Egypt (and additional subsidiaries AXA
Property and AXA Life Insurance), had grown to more than EGP1bn, according to a December 2016 article in the Daily News, with
over 90% of this market activity taking place in the life sector.
Hampering growth of the life insurance industry are the relatively low average household income levels in Egypt. Most households
fall into the lower-income brackets (with income between USD5,000 and USD10,000 or between USD1,000 and USD5,000), which
significantly restricts the affordability of most traditional life insurance products. Over the long term, beyond the negative effects of
the recent currency and inflation shock, household income rates will gradually improve and insurers may also be able to drive
growth by developing a wider range of microinsurance products.
Non-Life Insurance
In many markets at a similarly low level of development, motor and property lines of insurance tend to dominate the non-life sector.
Egypt largely adheres to this dynamic at the retail level. Most lines are tailored to commercial customers rather than the individual
consumer. Significant business is written in engineering and oil cover given the large scale of the country's industrial sector, with
further products likely to be made available as these sectors develop.
In personal lines, autos insurance is well established and contributes a significant share of non-commercial insurance cover.
Products in this area are generally quite basic, with little scope for premium or niche cover. A growing area of interest for Egypt's
non-life insurers is health cover, with the likes of AXA and MedGulf moving into the sector and offering new products drawing on
their global and regional expertise.
The government is seeking to extend private health insurance, but barriers include the lack of a unified health industry and
adequate provision. Most of the population is covered by social insurance administered by the Health Insurance Organisation and
funded by salary contributions from employees and employers. A new law is designed to give every citizen an electronic card to
receive the insurance services. In May 2017, the Doctors Syndicate objected to what it sees as a constitutional violation as it will
include only subscribers and will not cover all Egyptians, according to Article No. 18 in the 2014 constitution. Their petition also
mentioned that the draft law obligates the citizen to pay a part of the provided medical services' cost, in violation of the constitution.
The insurance industry wants to expand the number of compulsory lines. In July 2017, Chairman of the Insurance Federation of
Egypt, Abd El-Raouf Kotb, pointed to the fact that there were only four kinds of compulsory insurance in Egypt, including motor third
party liability insurance and public liability insurance. The federation has submitted proposals for new compulsory lines to the EFSA,
including residential property, medical liability, professional indemnity, microinsurance and protection insurance for Egyptians
working in other Arab countries. However, the government appears indifferent, and it is unlikely that it will heed the federation's
requests, partly owing to the added costs this would pose for households already suffering the effects of inflation on living
standards.
Under reform plans, all public and private sector workers will benefit from the new comprehensive insurance system, with premiums
taken from monthly salaries at varying percentages, although always less than 5%. The new insurance law will be applied over three
phases, ending in 2032. It will be introduced first in Port Said, Suez, Ismailia, North Sinai, South Sinai and Alexandria. The second
phase includes the governorates of Fayoum, Beni Sueif, Assiut, Minya, Sohag, Qena, Luxor, Aswan, the New Valley and the Red Sea.
The final phase will include Cairo, Giza, Qaliubiya, Beheira, Gharbiya, Menoufiya, Kafr El-Sheikh, Sharqiya, Daqahliya, Damietta and
Marsa Matrouh.
The new system is likely to need an increase in government spending on the health system from the current EGP8bn per annum to
EGP120bn per annum, according to Deputy Minister of Health and Population for Insurance Affairs Ali Hegazi.
Egypt's non-life sector is overwhelmingly dominated by the state-owned market leader Misr Insurance. In 2012, the latest year for
which comprehensive company-level data has been made available, Misr captured comfortably in excess of 50% of the sector
premiums, amounting to more than USD600mn in gross premiums. This made Misr a significant player in regional terms and
dwarfed the next largest non-life company's gross premiums of USD63mn. This overbearing dominance is a negative for the sector,
with product innovation and price competition unlikely to develop substantially while the status quo is so firmly ingrained, although
the presence of international major AXA, particularly in the health and property segments, provides one source of significant
competition.
Few other insurers are worthy of significant discussion, with so many of them competing for a small slice of an underdeveloped
market. The most significant players in terms of posing any sort of threat to Misr's dominance are likely to be the multinational
companies that can draw on significant expertise and capital, as well as leveraging an internationally established brand. American
International Group is well placed to build its market share, enjoying all of the benefits detailed above. In a similar vein, Allianz may
also be able to build on the branch network that it enjoys through significant life sector operations.
Islamic Insurance
One particular area that is currently underdeveloped in comparison with some other markets in the Middle East and North Africa
region is that of shari'a-compliant products under the takaful label. Takaful insurance represents a small but growing market.
Takaful products are better developed in the non-life sector than in the life sector, but are similarly expected to outperform
conventional insurance products over the next 10 years. While takaful remains a small category for the non-life sector, it has gained
notable market share, rising from 4.9% in 2010 to 9.2% in 2015. In the life market it has risen from 0.3% of premiums in 2010 to
5.0% in 2015. By 2017 there were 35 firms providing shari'a-compliant insurance services, including nine takaful firms. In
Q117 takaful firms had a 9% share of the consolidated market.
In August 2017, the creation of the first state-owned takaful insurance company was announced, with commencement of
operations expected in Q118. The new company, Misr Takaful Insurance, will have authorised capital of around EGP500mn
(USD28mn), issued capital of EGP120mn and paid-up capital of EGP60mn. It is owned by Misr Insurance Holding (40%), Misr Life
Insurance (20%), Misr Real Estate Assets Management (20%), Holdipharma (10%) and Misr Investment and Finance
Fund (10%).
Bancassurance
Bancassurance was suspended in 2008 owing to concerns about misselling, but resumed in 2013 following a review of rules. Life
insurers are the biggest beneficiaries of bancassurance, but are complaining of weak yield, citing red tape which limits their ability to
tap into growth opportunities. In 2016 the Egyptian central bank and the EFSA loosened regulations to enable banks to enter into
bancassurance arrangements with up to four insurers, including one general insurer, one general takaful operator, one life insurer
and one family takaful company. This was an expansion from the previous restriction of permitting a bank to tie up with only one
general insurer and one life insurer.
In 2014 the EFSA enabled Egyptian Post, Egypt's national postal service, to sell insurance products through its branches. In a
country where only one in seven people have a bank account, this was expected to help lay the basis for growth in microinsurance.
Emirates NBD, with more than 60 branches nationwide, has a bancassurance agreement with Allianz Egypt, which it extended
by five years in January 2016. The Bank of Alexandria, with 170 branches, has had a bancassurance agreement with MetLife since
2015.
Obstacles include the length of time taken to negotiate terms with banks in addition to the delay faced in securing approval of
bancassurance agreements from the central bank. Disagreements with banks relate to fees paid by insurers for using bank
distribution networks and the capabilities of all branches. While yields are not as high as expected, bancassurance is still driving
growth in premiums and is unlikely to be significantly held back.
Non-Life Premiums by Sub-Sector

Egypt - Non-Life Premiums Written By Sub-Sector, USDmn (2020)
Source: EFSA, Fitch Solutions
The Egyptian insurance sector is regulated by the Egyptian Financial Supervisory Authority (EFSA), which regulates all non-banking
financial institutions. EFSA took over the role of insurance sector regulator in 2009 from the Egyptian Insurance Supervisory
Authority (EISA). EISA had replaced the Egyptian General Insurance Institution in 1976.
The sector's regulation began in 1939 and has evolved over the decades. Passed in 1982, the Law on Insurance Supervision and
Control (Law No. 10) currently governs the sector, although it has been revised over the years. Full foreign ownership is permitted
under Law No. 156 of 1998, although non-Egyptians are still not allowed to own a cooperative or mutual insurance company.
Compulsory insurance lines include third party motor liability, which was imposed in 1956. In 2007 a fund was created through a 3%
levy on premiums to cover the claims of the uninsured or where the person responsible cannot be determined. Limited liability for
highway transport vehicles was also imposed. In 2008 unlimited liability was abolished and replaced with a cap.
Under the regulations, insurers are required to have EGP60mn of capital, half of which must be paid upfront, while corporate brokers
must have EGP2mn of capital. Brokers need to renew their licences every three years as well as submit annual reports to the EFSA.
Under Decree 245 of 2008, insurance firms are required to put 15% of investments in bonds, 25% in shares, 30% in real estate and
50% in cash or equivalent. A maximum of 5% of investment is placed on any single bond or security and 10% on any single real
estate investment.
In December 2017, the Egyptian parliament approved a comprehensive health insurance bill. The Universal Health Care Act will be
implemented gradually between 2018 and 2032, with compulsory subscription set to generate EGP600bn in cover. However, the
quality standards set up under the law mean that only 20% of government hospitals would qualify to provide treatment, according
to the Egyptian Medical Syndicate. There are also concerns that the contributions will not cover the cost of treatment, particularly if
government hospitals are closed or privatised. The Insurance Federation of Egypt has sought to clarify the role of health insurers in
the provision of cover, stressing that they possess administrative and technological expertise to provide additional health coverage
and help with third-party administrators. The involvement of health insurers would provide a significant boost to sector income.
Asset Management
Asset Management Snapshot
Key View: Egypt's asset management sector, as with other sectors of the financial services industry, offers unrealised growth
potential. Improving income and employment rates should increase demand for savings and investment funds in the country, and
while a large proportion of the consumer base is still excluded from formal banking services, the expansion of the middle class is
expected to result in growth in the asset management sector. Demand will be met by a growing number of funds provided by a mix
of domestic and international asset management companies.
• Investor confidence in Egypt is gradually returning, with a recent poll by Reuters finding that a slight majority of Middle Eastern
funds planned to increase investment in the country (as well as the UAE) over the next three months.
• Opportunities for foreign investors are improving; for example, Blackstone Group and Edra Power Holdings of Malaysia are
reportedly being considered as buyers for assets held by the Egyptian Electricity Holding Company.
The asset management sector in Egypt, as with other sectors of the financial services industry, is relatively underdeveloped,
although the presence of a number of major multinational asset management companies brings more depth and diversity to the
market. There is scope for new entrants in the market, and as more consumers begin to use a greater range of investment services,
we expect solid growth in the asset management sector.
In 2018 the Egyptian Investment Management Association ranked the CIB II (Istthmar) equity fund as the top performing open-
ended equity fund available in the market, with a year-to-date return of 4.72%, while most other equity funds in the market saw
declines. CIB II (Istthmar), held by CI Asset Management, is also the top performing equity fund on a five-year basis. In the Money
Market Funds, Blom Egypt Investments Asset Management's Blom Bank Fund was the top performing fund in 2018, with a
year-to-date return of 15.36%.
EGYPTIAN MUTUAL FUNDS: PERFORMANCE OF OPEN-ENDED EQUITY FUNDS (2018)

Fund Management Company 2018 Return (%) Rank
CIB II (Istthmar) CI Asset Management 4.72 1
EDBE (Al Khabeer) (10) HC Securities -2.7 2
SAIB I (22) Prime Investments -3.17 3
AMIG (Allied Investors)(6) Prime Investments -3.38 4
Suez Canal Bank Fund II (Al Agyal) Beltone Asset Management -3.96 5
Suez Canal Bank HC Securities -4.91 6
Housing & Development Bank Fund (Taamir) Prime Investments -5.08 7
National Bank III (14) HC Securities -5.26 8
Misr Al Mostakbal (19) HC Securities -5.28 9
Banque Misr II (7) Misr Capital Investments -5.76 10
Banque Misr III (12) Misr Capital Investments -5.81 11
Misr Iran (13) HC Securities -5.92 12
Pioneers Fund I Amwal for Financial Investments -6.72 13
Banque du Caire (9) Hermes Funds Management -8.03 14
AAIB (Shield ) (11) Arab African Investment Management -8.31 15
Bank of Alexandria Hermes Funds Management -8.61 16
Credit Agricole Egypt I Hermes Funds Management -9.0 17
Credit Agricole Egypt II Hermes Funds Management -9.03 18
Egyptian Gulf Bank Hermes Funds Management -9.07 19
National Bank V (15) Al Ahly Financial Investments Management -9.28 20
ABC Bank Fund Rasmala Egypt Asset Management -9.44 21
Ahli United Bank (Alfa) (21) Hermes Funds Management -9.56 22
Al Ahli Bank of Kuwait - Egypt Fund (16) Sigma Funds Management -12.1 23
National Bank of Kuwait (Namaa) 20) NBK Capital Asset Management Egypt -12.63 24
Pharos Fund I Pharos Asset Management -13.21 25
National Bank II (8) Al Ahly Financial Investments Management -13.46 26

Sigma Traded Equity Fund (18) Sigma Funds Management -14.72 27
Blom Bank Fund (17) Blom Egypt Investments Asset Management -16.05 28
Source: Egyptian Investment Management Association
EGYPTIAN MUTUAL FUNDS: PERFORMANCE OF OPEN-ENDED BALANCED FUNDS (2018)

Khier Fund (4) Acumen Asset Management 16.1 1
CIB Fund (Takamol) CI Asset Management 6.58 2
Arab Investment Bank Fund III (Sanady) (5) HC Securities 0.17 3
Principal Bank for Development & Agricultural Credit (Al Hermes Funds Management -0.08 4
Massi)
Banque Misr I (2) Misr Capital Investments -1.82 5
Credit Agricole Egypt IV (Al Theqa) HC Securities -4.55 6
National Bank of Kuwait (Al Mezan) (3) NBK Capital Asset Management Egypt -5.21 7
National Bank I (1) Al Ahly Financial Investments Management -8.7 8
EGYPTIAN MUTUAL FUNDS: PERFORMANCE OF OPEN-ENDED MONEY MARKET FUNDS (2018)

CIB (Osoul) CI Asset Management 15.52 1
National Bank IV Al Ahly Financial Investments 15.4 2

Management
Blom Bank Fund (4) Blom Egypt Investments Asset 15.36 3

Management
SAIB Bank Fund Beltone Asset Management 15.09 4
Banque Du Caire Fund II Misr Beltone Asset Management 15.04 5
Misr Money Market Beltone Asset Management 14.99 6
EDBE II (Daily) Rasmala Egypt Asset Management 14.95 7
ABC Bank Fund (Mazaya) Beltone Asset Management 14.93 8
HSBC Egypt Bank Fund (2) EFG-Hermes 14.93 9
Attijari Wafa Bank Beltone Asset Management 14.89 10
Arab Bank Fund (Youmati) Beltone Asset Management 14.85 11
Misr Insurance Fund Misr Beltone Asset Management 14.84 12
Credit Agricole Egypt III (1) Hermes Funds Management 14.82 13
Arab Investment Bank Fund Hermes Funds Management 14.79 14
Housing & Development Bank Fund (Mawared) Prime Investments 14.77 15
Ahli United Bank (Tharwa) (5) Hermes Funds Management 14.75 16
Alexandria Bank II Hermes Funds Management 14.74 17
QNB Al Ahli (Themar) EFG-Hermes 14.7 18
Audi Bank Fund Hermes Funds Management 14.59 19
Arope Insurance Misr Fund Blom Egypt Investments Asset 14.55 20

Management
AAIB (Juman) Arab African Investment Management 14.5 21
Misr Iran II HC Securities 14.4 22
Principal Bank for Development & Agricultural HC Securities 14.4 23

Credit (Hasad)
Egyptian Gulf Bank Fund (Tharaa) Prime Investments 14.35 24
National Bank of Abu Dhabi HC Securities May 14.26 25
National Bank of Kuwait Fund (EshraK) NBK Capital Asset Management Egypt 14.15 26
Al Ahli Bank of Kuwait Fund (3) Sigma Funds Management 13.41 27
EGYPTIAN MUTUAL FUNDS: PERFORMANCE OF OPEN-ENDED FIXED INCOME FUNDS (2018)

CIB (Thabat) CI Asset Management 20.08 1
Egyptian Arab Land Bank Fund (Al Masry) Alpha Capital 15.38 2
Banque Du Caire (Al Thabet) CI Asset Management 15.51 3
AAIB (Gozoor) Arab African Investment Management 14.17 4
National Bank of Egypt VIII Al Ahly Financial Investments Management 13.16 5
Egyptian mutual funds have gained a good reputation due to a high level of transparency and the supervisory regime. Egyptian
mutual funds are supervised by the Egyptian Financial Supervisory Authority (EFSA). The regulatory framework for mutual funds was
established under Law No.95 of 1992, which was revised in 2007 and 2014. By law, only banks and insurance companies are
allowed to launch money market funds. The Central Bank of Egypt links the size of funds to the size of the issuing bank's capital and
local deposits.
Each fund has an oversight committee with a majority of independent members. Shareholders are required to approve
fundamental changes to the prospectus and EFSA-registered auditors are required to approve quarterly financial statements. Value
calculations have to be independently assessed. The fund industry has avoided crisis, even during challenging economic
circumstances, owing to limitations on asset allocation and excessive risks.
Stock Exchanges
Stock Exchanges Snapshot
Key View: Egypt's stock exchange offers a relatively active platform for trading and investment activity, both foreign and domestic,
although the latter dominates market activity. A large number of companies across diverse industries are represented on the
exchange and listings are set to expand following a range of initial public offerings, including that of large state-owned enterprises,
which are expected to take place over the coming months.
Short-Term Trade Fluctuations

Egypt - EGX-30 Index (March-May 2019)
Source: Investing.com, Fitch Solutions
• The Egyptian Exchange market capitalisation was EGP708.13bn as of the end of January 2020, a 0.02% decrease from the
previous month. Banks make up 23.8% of total market capitalisation, followed by non-banking financial services (11.6%) and real
estate at 10.6%.
• The government's privatisation programme has made some progress with the launch of a 4.5% share of Eastern Company.
The Heliopolis Company for Housing and Development is reportedly the next state-owned company due for an initial
pubic offering. Other companies included in privatisation plans include Engineering Company for Petroleum and Chemical
Industries, Assiut Oil Refining Company and Sidi Kerir Petrochemicals.
The Egyptian Exchange (EGX) was originally founded in 1883 and consists of a main market, an over-the-counter market and NILEX,
which specialises in small- and medium-sized enterprises. By the end of 2019 there were 226 stocks listed on the main market with
32 listed on the NILEX. Total market capitalisation was EGP708.13bn as of the end of January 2020.
Privatisation: A Wave Of IPOs Expected By 2020
Egypt's FY2018/19 budget aims to bridge the rising deficit with a programme of initial public offerings (IPOs). In March 2019, Prime
Minister Sherif Ismail announced plans to list 23 of the most successful public sector companies in Egypt on the EGX. The
government aimed to raise EGP5-7bn (USD280-390mn) through IPOs in FY2017/18. The IPOs should help increase the size and
liquidity of Egypt's stock market. The goal is to list the companies by mid-2020 in a bid to expand their ownership base and
invigorate the EGX, a target that could prove overly ambitious and that offers no permanent solution to the deficit. The government
is likely to maintain more than 51% of these companies’ shares to ensure control, especially commodity monopolies and strategic
companies.
EGYPT - PRICE/EARNINGS RATIO AND DIVIDEND YIELD BY SECTOR (DECEMBER 2018)

Sector Trading Volume (mn Trading Price/ Average
shares) Value Earnings Dividend
(EGPmn) Ratio Yield (%)
Financial services excluding banks 3,736.30 16,293.30 15.39 6.01
Real estate 2,764.60 9,297.90 25.45 5.76
Telecommunications 2,719.90 7,674.60 5.03 4.77
Travel and leisure 792.50 6,107.60 6.7 1.97
Industrial goods and services and automobiles 659.10 3,206.80 11.78 12.85
Construction and materials 494.00 2,798.50 17.35 4.22
Personal and household products 482.70 2,218.40 15.02 9.65
Food and beverage 270.10 2,125.80 17.16 7.62
Basic resources 176.70 1,875.20 13.44 7.17
Chemicals 170.80 1,568.70 17.08 6.91
Healthcare and pharmaceuticals 148.80 1,192.20 16.54 7.04
Banks 140.2 1,111.40 16.36 5.29
Retail 137.40 1,014.00 8.23 14.26
Oil and gas 121.70 846.50 8.27 13.62
Media 17.10 241.60 9.51 6.78
Technology 14.10 84.50 21.25 na
Utilities 0.30 20.00 68.6 1.37
Source: Egyptian Exchange
The government is preparing a programme of IPOs of various state-owned companies - the first to take place since 2005 when
shares were sold in Telecom Egypt and oil companies Sidi Kerir Petrochemicals and AMOC. In March 2019, the government
sold a 4.5% share of the Eastern Company, with a further 19 companies and three banks included in the government's
IPO programme. This includes the oil company Engineering Company for Petroleum and Chemical Industries (ENPPI). In July
2017, the government appointed a consortium led by CI Capital to act as lead managers and bookrunners for the listing of ENPPI,
which was scheduled for Q417 but in September 2017 was moved back to Q118 and was again delayed to H119. It aims to raise
USD150mn from the IPO.
However, the flotation of the Egyptian pound has reduced the value of IPOs in foreign currency terms, which could deter
institutional investors looking for high-value investments. The first IPO since flotation, Obour Land in December 2016, raised
EGP774.4mn (USD40.0mn) with international institutional involvement of more than 60%. This is less than the USD90-110mn
average IPO before flotation and well below the level that would normally excite institutional investors, which is typically above
USD100mn. The IPO was nevertheless oversubscribed by more than seven times, compared with 5.5 and 6.7 times for the Domty
and Cleopatra Hospital IPOs respectively, in 2016. The high coverage ratio was the result of smaller financial institutional investors
dominating the buying. This indicates that larger institutions may be deterred from IPO participation.
The chief challenges going ahead will be the stability of the exchange rate, which significantly impacts the financial performance of
companies with a decline in both profitability and margins in foreign currency. At the time of an IPO, institutional investors will be
considering scenarios that anticipate further potential depreciation and balancing them against alternatives to IPOs, such as
acquisitions. Nevertheless, some may view the lower value of the Egyptian pound and IMF support as a positive development that
mitigates the higher risks in order to achieve greater future returns.
EGYPTIAN EXCHANGE INDICATORS

2013 2014 2015 2016 2017 2018
Volume (listed securities) 27,210.30 55,674.20 42,863.30 66,001.10 75,945.40 59,327.80
Volume (unlisted securities) 1,726.00 1,292.80 1,835.40 1,992.80 1,404.20 1,059.60
Volume (NILEX securities) 253.8 262.6 379.5 565.3 596.8 383.9
Total volume (mn) 29,190.10 57,229.60 45,078.20 68,559.20 77,946.40 60,771.30
Source: Egypt Exchange
LISTED SECURITIES MARKET

2013 2014 2015 2016 2017 2018
Number of listed companies 212 214 221 222 222 220
Number of traded companies 204 206 209 209 213 218
Market capitalisation, end of year (EGPbn) 426.8 500.0 429.8 601.6 824.9 749.7
Turnover ratio (%) 27.49 39.46 31.82 31.16 33.66 36.01
NILEX INDICATORS
2013 2014 2015 2016 2017 2018
Number of listed companies 24 33 31 32 32 32
Number of traded companies 21 25 27 27 29 30
Market capitalisation, end of year (LE bn) 1.40 1.10 1.00 1.40 1.20 1.20
Egypt's equity markets are subject to the control and supervision of the Egyptian Exchange (EGX) (supervising daily trading and
approving public offerings of secondary securities) and the Egyptian Financial Supervisory Authority (responsible for the issuance of
any securities, initial pubic offerings (IPOs) on the primary market and supervising companies providing services in capital markets).
Equity markets are regulated under Law No. 95 of 1992 (Capital Markets Law) and Executive Regulations No. 135 of 1993 issued by
the Minister of Economy and Foreign Trade.
The requirements for a primary listing on the main market of the EGX are:
• Securities must be dematerialised

• There must be no restriction on the transfer of shares in the issuing entity's constitution
• The issuer must enter into a contract with the exchange
• There is a minimum of 300 shareholders in the company and 5mn issued shares
• The submission of financial statements covering two years before listing
• Net pre-tax profit must be over 5% of the company's paid-in capital
• Primary listing is only available to Egyptian companies and foreign companies can only enjoy secondary listings
The minimum fully paid up capital requirement for an EGX listing is EBP50mn with small- and medium-sized enterprises (SMEs) on
the NILEX required to have a minimum of EGP1mn and a maximum of EGP50mn. The listing has to offer at least 10% of shares to
the public and these shares are not allowed to be owned by the founders or main shareholders. The main shareholders are also
prevented from falling below 51% of the shareholding in the company and 25% of issued capital for a period of two financial years
from the date of listing.
The main requirements for a foreign company listing, aside from only being allowed to list on the secondary market, are:
• Listing on another exchange must be subject to supervision of a regulatory body

• A legal representative in Egypt is required to represent the company
• Capital must be at least USD100mn or USD10mn for SMEs
• It must have at least 150 shareholders and 5% of listed shares must be free floating
In Q118 the Egyptian parliament amended the Capital Markets Act to facilitate sukuk (Islamic bond) issuance and investors’ ability to
hedge, a move that will deepen the market and make it more appealing to foreign investors. The law’s amendments include the
introduction of futures trading, a commodities exchange, allowing the establishment of privately owned stock exchanges and
reducing listing fees from 0.005% to 0.002% to encourage smaller companies to list on an exchange.
Macroeconomic Forecasts
Egypt Growth To Stay Strong In Next Two Years
Key View:
• At Fitch Solutions, we believe Egypt’s real GDP growth will remain robust over the next two years, hitting 5.6% in FY2019/20 and
5.7% in FY2020/21, from 5.6% in FY2018/19.
• Fixed investment will remain the primary driver of growth, in large part due to government capital spending. That said, lower
interest rates should eventually help stimulate more private investment as well.
• Private consumption will likely strengthen in FY2019/20 on the back of wage hikes made in 2019. Lower rates should also help
facilitate greater levels of household spending in the coming years.
• Net exports will likely remain a drag on headline growth, though we note that continued hydrocarbons exploration activity poses
some upside risks to this view.
Egypt Outperforming Rest Of MENA's Top Economies

5 Largest MENA Economies - Real GDP Growth, %
e/f = Fitch Solutions estimate/forecast. Source: National statistical offices and central banks, UN, Fitch Solutions
Egypt’s real GDP growth will likely remain strong in the short term. We expect growth to come in at 5.6% in FY2019/20
(ending June 30), in line with figures recorded from the previous fiscal year, and rise slightly to 5.7% in FY2020/21. Growth will
mainly be driven by domestic demand, pent up over the course of the last few years of tight monetary policy and high inflation.
These forecasts place Egypt firmly at the top of our growth rankings for the MENA region, well ahead of other major markets such as
Saudi Arabia and the UAE (although we expect Iran to rush past in 2021, mainly due to base effects).
Investment Boom Driving Growth For Now

Egypt - PP Contr. To Real GDP Growth
Note: Quarters refer to calendar year. Q319 = latest data available. Source: CBE, Fitch Solutions
Fixed investment will remain a key driver of headline economic expansion. Investment accounted for well over half of
Egypt’s economic growth in Q319 (calendar year), far outweighing other sources of domestic demand (see chart above). Much of
this investment is being initiated by the government (see chart below) through projects funded directly by the Treasury, investments
by public companies and so-called ‘national projects’ which, although nominally meant to attract private capital, also rely on state
funding. We believe the government will be able to maintain this investment spending in the near term - in large part thanks to
reductions in subsidy spending, but also due to falling financing costs on local and international debt markets.
Authorities Playing A Major Part In Capital Accumulation

Egypt - Implemented Investments By Actor, EGPbn
Note: Quarters refer to calendar year. Q219 = latest data available. Source: CBE, Fitch Solutions
Meanwhile, private investment should also pick up as local interest rates fall. While Purchasing Managers’ Index readings have only
scraped above the 50-mark (which separates expansion from contraction in the private non-oil sector) in two of the last 12 months,
we do think this is likely to turn around in 2020-2021. Monetary easing by the Central Bank of Egypt (CBE) in the last several months
has fed directly into lower market rates, and as a result, real business lending has been showing a tentative recovery from recent
years, at 3.6% y-o-y in November (see chart below). Given that we forecast further CBE rate cuts in the next two years, this uptrend is
likely to strengthen, which should underpin stronger private investment figures.
Credit Demand Up As Borrowing Costs Ease

Egypt - Interest Rates And Y-O-Y Credit Growth (CPI-Deflated)
Private consumption will increasingly contribute to growth over the coming quarters. Recent gains in business lending
pale in comparison to those seen in the household segment, where credit grew by 22.8% y-o-y in inflation-adjusted terms in
November. Stabilising inflation should offer considerable relief to households, which took a major hit from currency depreciation
and government subsidy cuts in 2016-2019, and help maintain the value of wage hikes enacted in early 2019. The public sector
minimum wage was hiked to EGP2,000 per month in March 2019, 66% above the previous rate, in addition to various smaller hikes
in the higher salary bands as well. These changes were reportedly implemented in November. As such, although private
consumption grew by just 1.1% y-o-y in Q319, we expect the figures to firm up in the Q419 GDP print, which is likely to be released
in February or March.
Net exports will likely head lower, although the hydrocarbon sector will be a wildcard. Moderating oil and gas production
has seen some of the strength go out of the net exports component of GDP in recent quarters, especially in the context of robustly
growing domestic energy consumption. External demand for non-oil exports also looks set to remain fairly subdued in the near
term, dragged down by weak eurozone and Chinese growth and a stronger EGP, while steady domestic demand growth is likely to
feed into higher imports. We therefore expect net exports to drag slightly on growth in the near term (-0.3 percentage points in
FY2019/20 and -0.4 pp in FY2020/21, from a positive 2.4pp in FY2018/19). That said, we highlight that the oil and gas sector could
still surprise to the upside, as highlighted by an uptick in exploration investment by several major foreign players towards the end of
2019. Substantial discoveries would also feed into stronger investment – indeed, hydrocarbons have been the primary source of FDI
inflows in recent years.
Macroeconomic Forecasts
MACROECONOMIC INDICATORS (EGYPT 2019-2029)
Indicator 2019e 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f 2029f
Nominal GDP, USDbn 316.4 388.6 445.3 486.6 531.7 580.4 634.0 693.5 760.9 834.8 916.0
Nominal GDP, EURbn 281.6 342.0 383.0 418.5 457.3 500.3 546.5 597.8 656.0 719.6 789.6
GDP per capita, USD 3,152 3,797 4,271 4,583 4,921 5,281 5,674 6,107 6,595 7,124 7,697
GDP per capita, EUR 2,805 3,341 3,673 3,941 4,232 4,553 4,891 5,264 5,685 6,141 6,635
Real GDP growth, % y-o-y 5.6 5.6 5.7 4.2 4.2 4.0 4.0 3.8 3.7 3.6 3.6
Private final consumption, % of GDP 82.9 80.2 78.4 77.1 76.1 75.2 74.2 73.4 72.7 72.0 71.3
Private final consumption, real growth

0.8 3.5 4.0 3.2 3.5 3.5 3.5 3.5 3.5 3.5 3.5
% y-o-y
Government final consumption, % of

7.7 7.4 7.2 7.0 6.9 6.8 6.7 6.6 6.5 6.4 6.3
GDP
Government final consumption, real

2.8 3.5 3.1 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
growth % y-o-y
Fixed capital formation, % of GDP 17.3 19.2 20.8 21.8 22.7 23.5 24.4 25.2 25.8 26.4 27.0
Fixed capital formation, real growth %

13.2 16.0 13.5 9.0 8.0 7.0 7.0 6.0 5.0 5.0 5.0
y-o-y
Population, mn 100.39 102.33 104.26 106.16 108.03 109.89 111.73 113.55 115.37 117.18 118.99
Unemployment, % of labour force, eop 8.0 7.5 7.5 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0
Consumer price inflation, % y-o-y, ave 9.4 6.8 6.3 6.0 5.8 5.5 5.3 5.0 5.0 5.0 5.0
Lending rate, %, ave 15.5 12.5 11.3 10.5 10.0 9.3 8.4 8.0 8.0 8.0 8.0
Central bank policy rate, % eop 13.25 11.75 10.75 10.25 9.75 8.75 8.00 8.00 8.00 8.00 8.00
Exchange rate EGP/USD, ave 16.82 15.65 15.45 15.72 15.96 16.16 16.32 16.40 16.40 16.40 16.40
Exchange rate EGP/EUR, ave 18.90 17.78 17.97 18.28 18.56 18.74 18.93 19.02 19.02 19.02 19.02
Budget balance, USDbn -26.7 -29.5 -29.2 -30.6 -31.9 -34.5 -37.2 -39.0 -40.5 -40.2 -37.8
Budget balance, % of GDP -8.1 -7.4 -6.6 -6.3 -6.0 -6.0 -5.9 -5.6 -5.3 -4.8 -4.1
Goods and services exports, USDbn 52.9 56.5 60.1 63.5 66.6 69.8 72.9 76.2 79.7 83.1 86.6
Goods and services imports, USDbn 77.9 82.9 88.0 92.3 96.8 101.5 106.4 111.6 117.0 122.7 128.7
Balance of trade in goods and services,

-25.0 -26.4 -28.0 -28.8 -30.2 -31.7 -33.5 -35.4 -37.3 -39.6 -42.1
USDbn
Balance of trade in goods and services,

-7.9 -6.8 -6.3 -5.9 -5.7 -5.5 -5.3 -5.1 -4.9 -4.7 -4.6
% of GDP
Current account balance, USDbn -8.2 -11.1 -12.9 -13.5 -13.9 -14.3 -15.0 -15.9 -16.8 -18.1 -19.5
Current account balance, % of GDP -2.6 -2.8 -2.9 -2.8 -2.6 -2.5 -2.4 -2.3 -2.2 -2.2 -2.1
Foreign reserves ex gold, USDbn 42.5 44.6 45.5 46.4 47.3 48.3 49.2 50.2 51.2 52.2 53.3
Import cover, months 6.5 6.5 6.2 6.0 5.9 5.7 5.6 5.4 5.3 5.1 5.0
e/f = Fitch Solutions estimate/forecast. Source: CBE, Ministry of Finance, Bloomberg, UN, Fitch Solutions
Household Income Forecasts

HOUSEHOLD INCOME DATA (EGYPT 2018-2024)
Indicator 2018e 2019e 2020f 2021f 2022f 2023f 2024f
Households, number 24,605,899 25,350,523 26,039,288 26,801,626 27,395,275 27,987,447 28,579,234
Households, % y-o-y 4.9 3.0 2.7 2.9 2.2 2.2 2.1
Average working adults per household 3.6 3.5 3.4 3.3 3.3 3.2 3.2
Gross Income, per household, EGP 63,750 74,444 83,087 91,950 100,128 108,862 118,024
Gross Income, per household, USD 3,587 4,426 5,309 5,950 6,368 6,821 7,304
Gross Income, per capita, EGP 18,608 21,882 24,528 27,242 29,746 32,420 35,225
Gross Income, per capita, USD 1,047 1,301 1,567 1,762 1,891 2,031 2,180
Disposable Income, per household, EGP 56,229 65,661 73,284 81,101 88,314 96,018 104,099
Disposable Income, per household, USD 3,164 3,903 4,682 5,248 5,616 6,016 6,442
Disposable Income, per capita, EGP 16,413 19,301 21,634 24,028 26,236 28,595 31,069
Disposable Income, per capita, USD 923 1,147 1,382 1,554 1,668 1,791 1,922
Tax and social contributions, % of gross

11.8 11.8 11.8 11.8 11.8 11.8 11.8
income
Tax and social contributions, per capita, EGP 2,195.49 2,581.79 2,893.97 3,214.12 3,509.52 3,825.01 4,155.95
Tax and social contributions, per capita, USD 123.6 153.5 184.9 208.0 223.2 239.7 257.2
Households '000 earning USD5,000+ 2,794.9 5,255.8 8,532.6 11,242.4 13,097.9 15,073.3 17,093.2
Households '000 earning USD10,000+ 294.6 606.5 1,127.2 1,670.0 2,110.2 2,666.8 3,354.8
Households '000 earning USD50,000+ 1.2 2.5 4.7 7.0 8.8 11.1 13.9
Households earning USD5,000+, % total 11.4 20.7 32.8 41.9 47.8 53.9 59.8
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions
Egypt Demographic Outlook

Demographic analysis is a key pillar of our macroeconomic and industry forecasting model. Not only is the total population of a
country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues
ranging from future population trends to productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2017, the change in the structure of the population between 2017 and
2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key
metrics such as population ratios, the urban/rural split and life expectancy.
Population
Egypt (1990-2050)
f = Fitch Solutions forecast. Source: World Bank, UN, Fitch Solutions
Egypt Population Pyramid

2017 (LHS) & 2017 Versus 2050 (RHS)
Source: World Bank, UN, Fitch Solutions
POPULATION HEADLINE INDICATORS (EGYPT 1990-2025)

Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, total, '000 57,412.2 69,906.0 76,778.1 84,107.6 93,778.2 102,941.5 111,470.9
Population, % y-o-y 1.86 1.85 1.99 2.14 1.75 1.52
Population, total, male, '000 28,822.4 35,164.3 38,706.6 42,466.0 47,408.9 52,045.8 56,328.9
Population, total, female, '000 28,589.8 34,741.7 38,071.5 41,641.6 46,369.2 50,895.7 55,142.0
Population ratio, male/female 1.01 1.01 1.02 1.02 1.02 1.02 1.02
KEY POPULATION RATIOS (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Active population, total, '000 31,281.9 40,922.9 47,429.1 53,104.5 57,954.8 63,320.2 68,959.6
Active population, % of total population 54.5 58.5 61.8 63.1 61.8 61.5 61.9
Dependent population, total, '000 26,130.3 28,983.1 29,349.1 31,003.1 35,823.3 39,621.3 42,511.4
Dependent ratio, % of total working age 83.5 70.8 61.9 58.4 61.8 62.6 61.6
Youth population, total, '000 23,542.7 25,553.4 25,604.9 26,988.9 31,075.1 34,135.7 35,948.1
Youth population, % of total working age 75.3 62.4 54.0 50.8 53.6 53.9 52.1
Pensionable population, '000 2,587.6 3,429.7 3,744.1 4,014.2 4,748.2 5,485.6 6,563.3
Pensionable population, % of total working age 8.3 8.4 7.9 7.6 8.2 8.7 9.5
URBAN/RURAL POPULATION & LIFE EXPECTANCY (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Urban population, '000 24,961.7 29,917.7 33,035.3 36,182.3 40,451.2 45,070.9 50,121.8
Urban population, % of total 43.5 42.8 43.0 43.0 43.1 43.8 45.0
Rural population, '000 32,450.5 39,988.3 43,742.8 47,925.4 53,327.0 57,870.6 61,349.1
Rural population, % of total 56.5 57.2 57.0 57.0 56.9 56.2 55.0
Life expectancy at birth, male, years 62.2 66.2 67.1 68.2 69.1 69.9 70.6
Life expectancy at birth, female, years 67.0 71.1 71.8 72.6 73.6 74.6 75.5
Life expectancy at birth, average, years 64.6 68.6 69.4 70.4 71.3 72.2 73.0
POPULATION BY AGE GROUP (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 0-4 yrs, total, '000 9,041.1 8,272.6 9,000.9 9,868.7 12,374.4 12,071.6 11,678.5
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 70-74 yrs, total, '000 732.2 1,012.7 1,096.8 1,133.5 1,193.7 1,669.4 1,810.6
Population, 75-79 yrs, total, '000 452.9 607.4 719.8 781.9 809.3 863.5 1,232.0
Population, 80-84 yrs, total, '000 231.7 301.8 355.3 421.3 460.7 485.5 532.9
Population, 100+ yrs, total, '000 0.2 0.4 0.6 0.7 0.8 1.0 1.2
POPULATION BY AGE GROUP % (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 0-4 yrs, % total 15.75 11.83 11.72 11.73 13.20 11.73 10.48
Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Banking & Financial Services Methodology

Industry Forecast Methodology
Our industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric
modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard
practice, by the prevailing features of the industry data being examined.
Common to our analysis of every industry is the use of vector autoregressions, which allow us to forecast a variable using more than
the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil
consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most
desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile
form of univariate models: the autoregressive moving average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases,
we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.
We mainly use OLS estimators, and, in order to avoid relying on subjective views and encourage the use of objective views, we use a
'general-to-specific' method. We mainly use a linear model, but simple non-linear models, such as the log-linear model, are used
when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy
variables are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. We select the best model according to various different
criteria and tests, including but not exclusive to:
• R2 tests explanatory power; adjusted R2 takes degree of freedom into account;

• Testing the directional movement and magnitude of coefficients;
• Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); and
• All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.
Human intervention plays a necessary and desirable role in all of our industry forecasting. Experience, expertise and knowledge of
industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a
purely mechanical forecasting process would not.
Sector-Specific Methodology
Our Banking & Financial Services Report series is closely integrated with our analysis of country risk, macroeconomic trends and
financial markets. The reports draw heavily on our extensive economic dataset, which includes up to 550 indicators per country, as
well as our in-depth view of each local market. We collate our banking databanks from official sources (including central banks and
regulators) wherever possible, and only fall back on secondary sources where all attempts to secure primary data have failed.
Company data is sourced, in the first instance, from company reports, with central bank, regulator or trade association data only
used as a backup.
• The banking forecast scenario focuses on total assets, client loans and client deposits.
• Total assets are analogous to the combined balance sheet assets of all commercial banks in a particular country. They do not
incorporate the balance sheet of the central bank of the country in question.
• Client loans are loans to non-bank clients. They include loans to public sector and state-owned enterprises. However, they
generally do not include loans to governments, government (or non-government) bonds held or loans to central banks.
• Client deposits are deposits from the non-bank public. They generally include deposits from public sector and state-owned
enterprises. However, they only include government deposits if these are significant.
• We take into account capital items and bond portfolios. The former include shareholders funds, and subordinated debt that may
be counted as capital. The latter includes government and non-government bonds.
In quantifying the collective balance sheets of a particular country, we assume that three equations hold true:
• Total assets = total liabilities and capital;

• Total assets = client loans + bond portfolio + other assets;
• Total liabilities and capital = capital items + client deposits + other liabilities.
In terms of the equations, other assets and other liabilities are balancing items that ensure equations two and three can be
reconciled with equation one. In practice, other assets and other liabilities are analogous to inter-bank transactions. In some cases,
such transactions are generally with foreign banks.
In most countries for which we have compiled figures, building societies/thrifts are an insignificant part of the banking landscape,
and we do not include them in our figures. The US is the main exception to this.
In some cases, total assets and client loans include significant amounts that are owned or that have been lent to customers in
another country. In some cases, client deposits include significant amounts that have been deposited by residents of another
country. Such cross-border business is particularly important in major financial centres such as Singapore and Hong Kong, the
richer OECD countries and certain countries in Central and Eastern Europe.
Fit
Fitch
ch Solutions, 30 North C
Colonnade
olonnade,, Canary W
Wharf
harf,, L
London.
ondon. E14 5GN, UK
Tel: +44 (0)20 7248 0468
Fax: +44 (0)20 7248 0467
Web: www.fitchsolutions.com
IS SN: 2514-6378
ISSN:
Copy Deadline: February 2020

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2020
20 Fit
Fitch
ch Solutions Gr
Group
oup Limit
Limited.
ed. All rights rreserv
eserved.
ed.
All information, analysis, forecasts and data provided by Fitch Solutions Group Limited is for the exclusive use of subscribing persons or organisations (including those
using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.
All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Fitch
Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability
whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an
affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2020 Fitch
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Fitch Egypt Banking &amp; Financial Services Report - 2020-03-09

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Q2 2020

Asset Management .....................................................................................................................................................................29

Egypt Demographic Outlook....................................................................................................................................................43

Banking & Financial Services Methodology........................................................................................................................46

Loan Growth To Slow On Devaluation

e/f = Fitch Solutions estimate/forecast. Source: CBE, Fitch Solutions

Latest Trends And Developments

FINANCIAL SERVICES FORECASTS (EGYPT 2018-2023)

FINANCIAL SERVICES FORECASTS (EGYPT 2024-2029)

Latest Trends And Developments

Total Banking Assets

e/f = Fitch Solutions estimate/forecast. Source: CBE, Fitch Solutions

Egypt Credit Growth To Rise, But Interest Earnings Under Pressure

Lending Slump Partly An Inflation Story

Source: CBE, Fitch Solutions

Easing Lending Conditions To Support Loan Growth

Source: CBE, Fitch Solutions

Normalising Net Interest Margins To Limit Profits

KEY BANKING FORECASTS (EGYPT 2018-2024)

Loan/deposit ratio 47.39 47.39 49.21 50.60 51.54 51.54 51.07

Loan/asset ratio 33.17 32.86 33.16 33.78 34.73 35.38 35.71

Banking Sector Structural Characteristics

Total assets, EGPmn 5,432,657 5,758,616 6,161,719 6,593,039 7,054,552 7,548,371

Total assets, USDmn 304,098 359,239 402,726 422,468 445,360 469,493

Total assets, % of GDP 122.4 108.2 101.3 95.7 92.7 89.3

Total assets, % y-o-y 12.9 6.0 7.0 7.0 7.0 7.0

Client loans, EGPmn 1,801,975 1,892,073 2,043,439 2,227,349 2,450,084 2,670,591

Client loans, USDmn 100,867 118,033 133,558 142,723 154,676 166,105

Client loans, % of GDP 40.6 35.5 33.6 32.3 32.2 31.6

Client loans, % y-o-y 24.0 5.0 8.0 9.0 10.0 9.0

Total assets, EGPmn 8,076,757 8,642,130 9,247,079 9,894,375 10,537,509 11,169,760

Total assets, USDmn 497,384 526,931 563,816 603,284 642,497 681,047

Total assets, % of GDP 86.2 83.5 81.2 79.0 76.5 73.7

Total assets, % y-o-y 7.0 7.0 7.0 7.0 6.5 6.0

Client loans, EGPmn 2,884,239 3,114,978 3,364,176 3,633,310 3,923,975 4,237,893

Client loans, USDmn 177,617 189,927 205,122 221,531 239,254 258,394

Client loans, % of GDP 30.8 30.1 29.5 29.0 28.5 28.0

Client loans, % y-o-y 8.0 8.0 8.0 8.0 8.0 8.0

Client deposits, EGPmn 3,802,591 3,992,720 4,152,429 4,401,575 4,753,701 5,181,534

Client deposits, USDmn 212,853 249,078 271,400 282,043 300,105 322,280

Client deposits, % of GDP 85.7 75.0 68.3 63.9 62.4 61.3

Client deposits, % y-o-y 14.2 5.0 4.0 6.0 8.0 9.0

LIABILITIES FORECASTS (EGYPT 2024-2029)

Client deposits, EGPmn 5,647,872 6,099,702 6,587,678 7,114,692 7,612,721 8,069,484

Client deposits, USDmn 347,808 371,913 401,666 433,800 464,166 492,016

Client deposits, % of GDP 60.3 58.9 57.8 56.8 55.3 53.2

Client deposits, % y-o-y 9.0 8.0 8.0 8.0 7.0 6.0

TOP 10 COMMERCIAL AND RETAIL BANKS BY TOTAL ASSETS, USDMN

Bank of Alexandria 101,330 45,218 10,553 30/09/

TOP 10 BANKS - ASSET QUALITY

Growth of Reserves for NPL Charges

National Bank of Egypt 17.6 1.7 279.2 1.2 31/12/2018

Banque MISR 22.6 2.9 124.1 0.6 30/06/2018

Commercial International Bank (Egypt) 9.9 4.0 224.7 1.2 31/12/2019

QNB ALAHLI Bank 11.9 2.8 162.9 0.5 31/12/2019

Banque Du Caire 14.7 4.0 150.1 1.2 30/09/2019

Bank of Alexandria 2.1 5.4 117.1 -0.5 30/09/2019

Faisal Islamic Bank of Egypt 20.0 9.9 84.0 -0.6 30/09/2019

Bank Audi -16.7 na na 0.5 30/09/2019

National Bank of Kuwait - Egypt -22.2 2.3 104.9 0.1 30/09/2019

Egyptian Gulf Bank -10.1 4.0 109.6 0.8 30/09/2019

TOP 10 BANKS - EARNINGS AND PROFITABILITY

TOP 10 BANKS - CAPITAL AND LEVERAGE

Tangible Net Income

Fitch Egypt Banking & Financial Services Report - 2020-03-09

Fitch Egypt Banking & Financial Services Report - 2020-03-09