The banking systems of Egypt, Morocco, and Jordan have shown resilience; however, they will face an uncertain future this year due to global economic instability and tightening monetary policies, as per a recent report by S&P Global.
The banking system is vulnerable to the global macroeconomic environment, which affects funding costs, tourism flows, commodity prices, and food inflation.
“We expect the cost of risk to remain elevated, while asset quality will slowly deteriorate across the three banking sectors covered in this report due to muted economic growth, higher inflation, and the winding-down of pandemic-related support,” the report states.
In Egypt, the construction and energy sectors are expected to be the key growth drivers, slightly outpacing their peers. However, exchange rate devaluation will likely dampen household spending for much of 2023, leading to a lower growth forecast than in 2021 and 2022. Nevertheless, the recent decline in energy prices and tourism resilience could mitigate the financial and operational impact on the banks.
S&P Global Ratings also identified several risks to the forecast, including a deterioration in sovereign creditworthiness, an escalation of the Russia-Ukraine conflict leading to a second round of global inflation due to a spike in energy and food prices, and higher levels of asset quality deterioration due to a larger-than-expected impact from higher interest rates and slower economic growth.
However, the report states that the banks in the region will remain profitable, supported by higher interest rates.