New banking rules in Egypt are credit positive, but SME loans may weigh: Moody's

The new lending regulations issued by Egypt’s central bank are credit positive for local banks, as they curb potential credit risks for banks with high retail exposure while reducing vulnerability of bank assets to high concentration in corporate loan books, Moody’s Investors Service said on Monday in a recent report.

“The CBE introduced a 35 percent debt payment-to-income cap for retail loans, a pre-emptive measure aimed at containing growth in retail and consumer loans reducing the threat of rising credit risk and delinquency rates in banks’ retail books,” the rating agency added.

In addition, the maximum exposure to a single corporate client was reduced to 15 percent from 20 percent of bank equity, while group concentration was cut to 20 percent from 25 percent.

The new regulation will help diversify the banks’ loan portfolio from a small number of corporate borrowers and will help develop the small and midsize enterprise sector, which accounts for an estimated 5-10 percent of total loans currently, Moody’s added.

It also expected state-owned National Bank of Egypt, the largest bank by assets, and Banque Misr where loan concentrations are the highest among the banks under coverage to benefit most from the new amendments.

Meanwhile, the central bank’s plan to raise SMEs lending to 20 percent of total loans portfolio, instead of current five percent to ten percent will likely hurt banks’ asset quality and loan performance, despite triggering an economic recovery, Moody’s added in a separate report.