Cairo – Mubasher: Net foreign assets held by the Egyptian banking sector have recovered from the pandemic-hit lows earlier in 2020 on the back of the return of foreign inflows to capital markets, Fitch Ratings said.
Net foreign assets at banks rose to $2.9 billion in October, keeping its upward trend after turning mildly positive in September, according to a statement on Tuesday.
This is an improvement from a negative $5.3 billion in April, following capital outflows of $17 billion caused by the global financial market volatility.
However, net foreign assets held by Egyptian banks are still low compared to $7.3 billion in February, pressured by a 21% rise in foreign liabilities to $18 billion in the first 10 months of 2020,
“This poses some repayment risks as banks' debt-servicing capacity could be pressured in the event of another sell-off by foreign investors that results in banks drawing down on their foreign assets.”
The banking sector's net foreign assets covered only 7% of domestic foreign currency-denominated deposits at the end of October, down from 18% at the end of February.
However, around 70% of the banks' external debt is long-term, reducing short-term refinancing risks, Fitch added.
“Egypt's positive carry trade is attractive to overseas' investors but foreign currency (FC) liquidity remains vulnerable to investors' confidence and exchange-rate fluctuation risks. Banks' higher reliance on external borrowings to boost their FC liquidity also poses some refinancing risks.”
