Egypt banks | Higher RRR: A manageable headwind; flag CAE
Higher RRR is negative, at face value, … On 22 September, the CBE hiked the reserve requirement ratio (RRR) on short-term LCY deposits by 4pp to 18.0% in effort to tighten liquidity and combat inflationary pressures. We calculate this should result in the absorption of cEGP150bn in excess liquidity from the system, which would be deposited at the CBE with no return. The RRR on FCY deposits was maintained at 10%. We expect banks will satisfy the higher liquidity requirement mainly through reducing their interbank assets (c18% of system assets) and to a lesser extent their treasury holdings (c37%).
…yet banks can manoeuvre around it. Egypt banks under coverage have the capacity to largely absorb the negative implications arising from the forgone interest income. We expect banks to begin gradually reflecting the lesser available liquidity through higher requested yields in future treasury auctions. Some banks could shift their deposit mixes toward longer-term CDs (zero RRR), while lowering their CoF on short-term deposits. Nonetheless, we note banks with high utilisation rates will face the most pressure to raise deposit rates. Banks, particularly Tier-1 names, could also resort to raising a portion of F&Cs. On lending, retail credit is the most likely product to be repriced upward to partially offset the impact.
Signal CAE as least impacted. We run four distinct scenarios below, for the full mitigation of the adverse impact through adjusting several metrics, while keeping all else constant. The worst-case scenario in which banks are hit by the new RRR’s full impact — with no response — could translate into a c100bps average drop in 2022e RoEs, on our figures. CAE stands as the least impacted by the higher RRR, as we calculate its additional required deposits at the CBE to stand at 1.0% of assets and 1.27% of deposits, the lowest among peers. This comes despite the bank's relatively high utilisation ratio (LTD: 68.5%). Relatively high liquidity deployed in the interbank market (13.2% of total assets) also serves to ameliorate the impact.
Egypt banks remain among favourites amid current dynamics. We maintain our expectation that tighter monetary policy will be complemented by further interest rate hikes. Egypt banks clearly stand as strong beneficiaries from higher policy rates, while maintaining neutral-to-positive exposures to any EGP weakness in the short-term. We continue to favour CAE by virtue of it being the least impacted by the RRR hike and on its high dividend yield (2022e: 12.1%). We also like CIB on its strong capacity and active treasury management. The stock still trades at a significantly undemanding valuation (2023e P/BV: 0.84x). We also flag ADIB-E as the finalisation of the upcoming capital increase should clear the way for the stock’s potential rerating.
Abu Dhabi Islamic Bank Egypt SAE, formerly National Bank for Development (NBD), is an Egypt-based public shareholding company engaged in the provision of retail, corporate and investment banking services through a network of 69 branches located across Egypt. The Bank's products and services are structured into four segments: the Personal banking segment includes current and saving account, investment account, club finance, charitable accounts and sukuk, among others; the Microfinance segment includes microfinance program; the Wholesale banking segment includes corporate banking, financial institutions and trade, cash management and corporate finance, and the Treasury segment includes foreign exchange, sharia-compliant products and market analysis/updates. In January 2014, the Company sold 11,619,575 shares representing 77.46% stake in National Company for Glass and Crystal's share capital to Abu Dhabi Islamic Financial Investments Holding.
Commercial International Bank (Egypt) is a financial institution based in Egypt. Co. is engaged in the business of commercial banking. Co.'s principal activity is the provision of banking and financial services to private and corporate customers. Services provided include deposits, checking and savings accounts, credit cards, letters of credit, commercial, mortgage and personal loans, and custody of securities. Co. maintains branches throughout Egypt and Qatar. Co.'s principal shareholder is the National Bank of Egypt which maintains a 99.9% investment.
Credit Agricole Egypt is a commercial banking group based in Egypt. Co. is engaged in full-service retail banking in France and Europe. Co. provides corporate banking, retail, and investment banking services in the Arab Republic of Egypt and foreign countries through its 73 branches. Co. maintains operations in 70 countries, and is a partner in supporting clients with their projects in all areas of retail banking and associated specialized business lines: day-to-day banking, savings, home and consumer loans, insurance, private banking, asset management, leasing and factoring, and corporate and investment banking.
Housing and Development Bank SAE. Housing and Development Bank SAE is an Egypt-based commercial and investment bank that principally operates in the housing and development sector. The Bank is organized into four business segments: the Large, Small and Medium sized organizations segment includes current and deposit accounts, loans, credit facilities and financial derivatives; the Investment segment includes mergers and acquisitions, financing and other financial instruments; the Personal segment offers current, savings and deposit accounts, credit cards, personal and real estate loans, and the Other activities segment includes other banking operations, such as fund management. The Bank also contributes in alleviating the housing problem by narrowing between housing offer and demand across Egypt through the establishment of an integrated group of housing projects.
National Societe Generale Bank is an investment and commercial ank. Co. is organized in three business lines which are Corporate Banking, Retail Banking, and Other Businesses. The Corporate Banking segment includes current account activities, deposits, debit current accounts, loans, credit facilities and financial derivatives to large, medium and small entities. The Retail Banking segment includes current account activities, deposits, savings, credit cards, personal loans and real estate loans. The Other Businesses segment include other banking activities such as fund management. As of Dec 31 2011, Co.'s total assets was LE62,552,216,903.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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