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Fitch: Egyptian Banks’ Capital Ratios Can Withstand Further EGP Depreciation

A group of towers on the Nile River in the Egyptian capital, Cairo (EPA)
A group of towers on the Nile River in the Egyptian capital, Cairo (EPA)
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Fitch: Egyptian Banks’ Capital Ratios Can Withstand Further EGP Depreciation

A group of towers on the Nile River in the Egyptian capital, Cairo (EPA)
A group of towers on the Nile River in the Egyptian capital, Cairo (EPA)

Fitch Ratings lauded the agreement between the Egyptian government and the International Monetary Fund (IMF) in which Egypt secures a $3 billion loan over 46 months.

Fitch Ratings added also said that Egyptian banks’ regulatory capital ratios can withstand further Egyptian pound depreciation as they are supported by healthy internal capital generation.

“Large private-sector banks are better-placed to withstand currency depreciation than the two largest public-sector banks, National Bank of Egypt (NBE) and Banque Misr (BM), due to their higher regulatory capital buffers,” according to Fitch.

It noted that the currency may remain under pressure in 2023 given Egypt’s import backlog, and large gross external funding needs, estimated at over $19 billion for 2023.

“It remains to be seen whether the Central Bank of Egypt will let the exchange rate and interest rates adjust sufficiently to attract new portfolio flows.”

“The introduction of certificates of deposit this month paying 25 percent interest will squeeze NBE’s and BM’s net interest margins, while private-sector banks are likely to see further deposit outflows. However, yields on sovereign securities, which increased by more than 500bp in 2022, should underpin private sector banks’ net interest margins and overall profitability metrics.”

Fitch warned that “asset quality risks are increasing as business activity slows due to macroeconomic pressures and FC shortages, but banks’ strong provisioning buffers of large holdings of sovereign securities should mitigate the impact.”

“In 2016 depreciation helped to boost fiscal revenues while eroding spending in real terms. Our baseline assumption is that a similar dynamic will play out in 2023, but less fiscally beneficial outcomes are possible,” according to the report.

“In the near term, the weaker exchange rate and higher interest rates will keep government debt/GDP and the interest/revenue ratio at high levels. Both are well above the medians for the ‘B’ rating category.”

Fitch called on the government to sustain flexible exchange-rate and higher interest rates.

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Revenue Growth, Improved Operational Efficiency Boost Profitability of Saudi Telecom Companies

A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)
A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)
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Revenue Growth, Improved Operational Efficiency Boost Profitability of Saudi Telecom Companies

A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)
A man monitors the movement of stocks on the Saudi Tadawul index. (AFP)

Telecommunications companies listed on the Saudi Stock Exchange (Tadawul) achieved a 12.46 percent growth in their net profits, which reached SAR 4.07 billion ($1.09 billion) during the second quarter of 2024, compared to SAR 3.62 billion ($965 million) during the same period last year.

They also recorded a 4.76 percent growth in revenues during the same quarter, after achieving sales worth more than SAR 26.18 billion ($7 billion), compared to SAR 24.99 billion ($6.66 billion) in the same quarter of 2023.

The growth in the revenues and net profitability is the result of several factors, including the increase in sales volume and revenues, especially in the business sector and fifth generation services, as well as the decrease in operating expenses and the focus on improving operational efficiency, controlling costs, and moving towards investment in infrastructure.

The sector comprises four companies, three of which conclude their fiscal year in December: Saudi Telecom Company (STC), Mobily, and Zain Saudi Arabia. The fiscal year of Etihad Atheeb Telecommunications Company (GO) ends on March 31.

According to its financial results announced on Tadawul, Etihad Etisalat Company (Mobily) achieved a 33 percent growth rate of profits, bringing its profits to SAR 661 million by the end of the second quarter of 2024, compared to SAR 497 million during the same period in 2023. The company also achieved a 4.59 percent growth in revenues to reach SAR 4.47 billion, compared to SAR 4.27 billion in the same quarter of last year.

The Saudi Telecom Company achieved the highest net profits among the sector’s companies, at about SAR 3.304 billion in the second quarter of 2024, compared to SAR 3.008 billion in the same quarter of 2023. The company registered a growth of 4.52 percent in revenues.

On the other hand, the revenues of the Saudi Mobile Telecommunications Company (Zain Saudi Arabia) increased by about 6.69 percent, as it recorded SAR 2.55 billion during the second quarter of 2024, compared to SAR 2.39 billion in the same period last year.

Commenting on the quarterly results of the sector’s companies, and the varying net profits, the head of asset management at Rassanah Capital, Thamer Al-Saeed, told Asharq Al-Awsat that the Saudi Telecom Company remains the sector leader in terms of customer base expansion.

He also noted the continued efforts of Mobily and Zain to offer many diverse products and other services.

Financial advisor at the Arab Trader Mohammed Al-Maymouni said the financial results of telecom sector companies have maintained a steady growth, up to 12 percent, adding that Mobily witnessed strong progress compared to the rest of the companies, despite the great competition which affected its revenues.

He added that Zain was moving at a good pace and its revenues have improved during the second quarter of 2024. However, its profits were affected by an increase in the financing cost by SAR 26.5 million riyals and a rise in interest, while net income declined significantly compared to the previous year, during which the company made exceptional returns.