Egyptian banks are projected to maintain robust net interest margins (NIMs), according to a new analysis by Fitch Ratings. The firm’s assessment, released Wednesday, indicates that while profitability metrics may moderate from recent highs, the sector is well-positioned to remain strong, exceeding historical averages.
The CBE is widely expected to initiate its monetary easing cycle as early as Thursday, with consensus estimates predicting a 100 to 200 basis point cut. This move follows a sustained decline in inflation, which fell to 24 percent in January 2025 from a peak of 35.7 percent in February 2024. Fitch forecasts inflation to further decelerate to 10.6 percent by mid-2026, driven by currency stability and despite planned reductions in fuel subsidies and adjustments to administered prices.
“We anticipate the CBE to pursue a path of rate cuts consistent with real rates of around 4 percent,” Fitch analysts stated, implying a potential reduction of approximately 10 percentage points over the next year, barring unforeseen external shocks.
Historical data suggests Egyptian banks possess a proven resilience to monetary easing. During the previous easing cycle from 2018 to 2021, when policy rates were slashed by a cumulative 10.5 percentage points, the sector’s NIM contracted by a mere 40 basis points from its 2020 peak. This stability was attributed to banks’ strategic deployment of liquidity into high-yielding treasury bonds and the benefit of lower funding costs, as a majority of customer deposits are interest-bearing and adjust downwards with policy rate cuts.
The sector’s NIM expanded by 140 basis points in the first half of 2024, bolstered by rising treasury bill yields. However, the anticipated rate cuts in 2025 are expected to exert some pressure on NIMs in the short term, due to positive repricing gaps.
“In the medium term, lower rates will translate to reduced funding costs as the bulk of customer deposits are time or savings deposits,” Fitch noted.
To mitigate the impact of declining yields on treasury bills and overnight deposit auctions, banks are expected to replicate their past strategy of increasing exposure to longer-term treasury bonds. The Egyptian government’s planned issuance of 203 billion Egyptian pounds in treasury bonds in the first quarter of 2025, a significant increase from the previous year, aligns with this strategy. Banks are also anticipated to expand their fixed-rate retail lending to further stabilize NIMs.
While NIMs are projected to experience a slight decline in 2025 and 2026 as lower rates permeate bank revenues, overall profitability is expected to remain robust. The operating profit to risk-weighted assets ratio, a key profitability metric, reached a record 10 percent for Egypt’s five largest banks in the first half of 2024. Although this figure is expected to moderate, it is projected to remain above historical averages, supported by increased business volumes, reduced borrowing costs, and improved economic conditions.
Net income growth, which more than doubled year-on-year in the first nine months of 2024, is expected to decelerate but still achieve at least a 30 percent increase in 2025.
Egypt stands out as the sole banking sector in the Middle East with an “improving” sector outlook for 2025, according to Fitch. This positive assessment reflects the firm’s confidence in the anticipated improvement in general business and operating conditions, driven by easing inflation, lower interest rates, enhanced investor confidence, and stable foreign currency liquidity.
