Reuters – Profits at Egypt’s banks are likely to be flat this year because of lower Treasury bill yields and a lack of lending opportunities, the deputy governor of the country’s central bank said on Tuesday.
“Profits will be the same as 2012 – no growth in profitability because yields on Treasury bills are lower,” Gamal Negm told Reuters on the sidelines of an economic conference in Abu Dhabi.
Egyptian banks saw their net profits jump 30 percent in 2012, he said. The main driver was banks’ heavy investment in government T-bills and bonds, whose yields jumped because of the state’s worsening financial position in the wake of the February 2011 revolution which ousted President Hosni Mubarak.
Yields on T-bills have fallen sharply, reducing banks’ returns from them, since Islamist President Mohamed Mursi was ousted in July this year and three Gulf states began delivering billions of dollars of aid to Egypt.
The average yield on 91-day Egyptian T-bills at an auction this week, for example, was 10.799 percent, down from 14.371 percent in late June.
Also, while Egyptian banks have plenty of deposits, they are still having difficulty finding lending opportunities given the weakness of the economy and political uncertainty. This has left their loans-to-deposit ratio around 48 to 49 percent, Negm said; in fast-growing economies the ratio is much higher.
“We believe that if we have a tight lending process during the good times, it will save your neck during the bad times. The challenge is to find viable project and lending opportunities,” Negm said.
Both the government and the private sector should initiate projects for banks to finance, but the key issue is economic stability, he added.
However, the banks’ financial health is improving, he said; the ratio of their loans that is non-performing fell to 9.5 percent in the second quarter of 2013 while on average they have set aside provisions to cover 98 percent of the NPLs, he added.