“Egyptian banks’ regulatory capital ratios can withstand further EGP depreciation as they are supported by healthy internal capital generation,” Fitch Ratings reported yesterday.

Fitch Ratings explained that large private sector banks are in a better position to withstand the currency devaluation than public sector banks National Bank of Egypt (NBE) and Banque Misr (BM), due to their higher regulatory capital buffers.

The EGP has fallen by 16% against the USD in 2023 so far, recording an overall drop of around 40% since the start of the fiscal year in June 2022. Egypt received $925 million in the local foreign exchange market since Wednesday’s sharp currency devaluation.

The Egyptian pounds “may remain under pressure in 2023,” the agency added, pointing to Egypt’s import backlog, estimated at $5.4 billion (around 60% of Egypt’s FX reserves).

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“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,” Fitch Ratings wrote.

The agency explained that some Egyptian banks keep moderate long open-currency positions, which can lead to pressure on capital ratios due to the inflation of foreign-currency (FC) denominated risk-weighted assets (RWA). 

The central bank recently revealed that the Egyptian banking sector has covered more than $2 billion in requests from Egyptian importers during the past three days.