Egypt: CBE’s new lending regulation will reduce banks' risk, says Moody’s

Jan 22, 2016

It said this will also reduce their vulnerability.

The new regulation issued by the Central Bank of Egypt (CBE) will help Egyptian banks mitigate their risks, according to a new report from rating agency Moody's.

The country's central bank issued new rules last week that include an affordability criteria for new borrowers - with a 35 per cent debt payment-to-income cap for retail loans - along with lower maximum loan limits for corporate borrowers.

It also reduced the maximum share that a single corporate borrower can take in a bank equity to 15 per cent from 20 per cent previously, and group concentrations to 20 per cent from 25 per cent.

In addition, the CBE instructed Egyptian banks to increase their lending to small and medium-sized enterprises (SMEs) to 20 per cent of their loan portfolio over the next four years.

Moody's said these regulations will mitigate the credit risk in banks' growing retail portfolios and will reduce banks' asset quality vulnerability that has been caused by focusing on large single-corporate customers.

The reports states that over the past four years, retail lending in Egypt has increased by 73 per cent despite the weakness of total loan growth. It now represents 27 per cent of all private-sector loans.

"The new regulation will help diversify the banks' loan portfolio" and will contribute to the development of the small and midsize enterprise sector, "which accounts for an estimated 5-10 per cent of total loans currently", Moody’s said.

It will also "avert overheating in the retail loan space and protect banks' asset quality," it added.ADNFCR-2976-ID-801810671-ADNFCR