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SIGNPOST
Bank sector looks bleak, but tourism’s up
Recently
published country reports about the state of Egypt’s economy
continue to be dominated by issues of post-September 11
reconstruction. This month, Signpost takes a quick glance at the
banking and tourism sectors, as the country continues its balancing
act between social and economic concerns.
“Socially
controversial economic liberalization measures such as privatization
will take second place to providing employment in an effort to tackle
poverty and social inequality,” said an Economist Intelligence Unit
(EIU) forecast for Egypt published March 25. “Domestic tensions will
rise as long as the economic situation continues to deteriorate and
living standards are undermined by the falling purchasing power of the
Egyptian pound.”
Forecasts
for the banking sector, meanwhile, make for similarly bleak reading.
Business Monitor International Ltd., which publishes quarterly country
reports on Egypt, said the country’s banks are in dire straits for a
number of reasons. “Other than retail banking, options for banks are
limited in the current environment, with capital markets not
performing well and the corporate sector likely to experience a lull
in activity over the coming year,” stated the report. “In short,
good lending opportunities remain scarce.”
State
banks in particular were singled out. “Public sector banks, which
were under-provisioned against their loan portfolios to start with,
are now in dire need of increasing their provisioning levels given the
current slowdown in the economy and the possibility of problem
credit,” the report stated.
While
state-owned banks control about 50 percent of total assets, their
infrastructure leaves a lot to be desired. “Their poor systems and
management structures will continue to hinder their growth in retail
banking despite the fact that they are well positioned to maximize on
this business given their extensive branch networks.”
Egypt
has some 2,200 bank branches nationwide – far from reaching market
saturation. Expansion in the banking retail market is therefore
possible, but difficult, according to the report, especially for
private sector banks. “Private banks are in need of more bricks and
mortar, but in the current environment, we do not anticipate
substantial growth in branch networks over the forecast period,” the
report stated.
The
private retail-banking sector has its own issues it must come to terms
with before it can grow. Lending legislation, needed to make retail
services more attractive to customers, has yet to take place. In
addition to this, the privatization of state sector banks – a move
that probably won’t happen any time soon – would constitute a huge
boost to private banking. “Although foreign interest in the Egyptian
banking sector remains strong, the long drawn out process involved in
selling off banks to international players is likely to begin to ease
the appetite for such purchase in the future,” the report stated.
While
banking-sector forecasts might look bleak, there are signs that one
important aspect of Egypt’s economy could be coming back to life. A
March 7 EIU report stated that tourism is making a comeback with the
government’s help. “Tourists have been encouraged by the recent
devaluation of the currency, and by a high-profile government
marketing campaign that stresses Egypt’s sunny beaches and its
cultural attractions,” according to the report. “Egypt’s recent
good press – including pictures of British prime minister Tony Blair
taking a family holiday in Egypt over Christmas – has helped
as well.”
M. SCOTT
BORTOT
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