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Dubai: Egypt's banking sector reforms are resulting in a strengthening system, says Moody's Investors Service in its new Banking System Outlook for Egypt report.
Nevertheless, the ongoing reform process still has some way to go.
According to Moody's, the Egyptian government has acknowledged the longstanding issues constraining the performance of the banking system and has taken a number of steps to address them.
Historically, banks have operated amid a weak economic base and low per capita GDP and, as a result, suffered from poor asset quality, low profitability and capital levels, as well as a bureaucratic operating style (particularly the four big state-owned banks).
"We believe that considerable progress has been made in many areas, and specifically in releasing the hidden value (in terms of capital gains) from the sale of joint-venture banks and other equity investments, allowing the loan loss provisioning gap to decrease, said Constantinos Kypreos, a Moody's analyst and author of the new report.
"Progress has also been made in upgrading banking supervision within the Central Bank of Egypt (CBE) and in achieving consolidation within the sector."
Moody's also acknowledged the authorities' ongoing efforts with regard to the financial and operational restructuring of the state-owned banks, particularly in aiming to apply best practice to risk management, information technology and human resources, and in strengthening the banks' management capabilities with the appointment of top managers with private sector experience.
The deposit ratings of all Egyptian banks are set at the Ba2/Not-Prime country ceiling for foreign currency, partly reflecting the implied support from the Egyptian financial authorities.
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