A stagnating economy is hurting the performance and prospects for Egyptian banks, says Moody's Investors Service in its new Bank System Outlook on Egypt. The prolonged economic flaws, exacerbated by the negative impact of both the Israeli-Palestinian conflict and the events of 11 September on Egypt's tourism sector, have weakened the economy "on the ground", where the banks feel it most.
The fall in tourist arrivals and tourism revenues has not only led to shortages in the supply of dollars, but also to an overall slowdown in many economic sectors that depend on tourism, says the rating agency. "This has weakened the banks' earning power and given rise to loan quality problems emanating from an increase in the level of bouncing cheques as well as problems in loan servicing by borrowers that are directly and indirectly linked to the tourism industry," said Moody's Senior Credit Officer Mardig Haladjian.
In Moody's view, business prospects for the banks will remain gloomy for the foreseeable future because the corporate sector's performance remains weak, volumes of imports and exports have fallen, and investment banking opportunities remain scarce, given the depressed state of the capital markets. "All banks eagerly chase opportunities in retail banking, but this newly developing sector hides risks for over-zealous bankers," Haladjian added.
Although recent signs of a slow recovery in tourism arrivals are encouraging, Moody's believes that there needs to be a significant and sustained rebound in tourism and foreign investment for the stagnant economy to get moving again and improve the business environment for the banks."Unless there are sustained improvements both in the economy and in the banking market, we believe negative pressures on the banks' ratings will increase," the analyst concludes. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
