Egypt’s investment bank and assets manager HC Securities said, following decision by the Central Bank to further cut interest rates approaching level in November 2017, the net interest margins realized by banks will drop.

HC Securities “expects the CBE to accelerate its planned rate cuts, with a possible 100–200 bps cut in the second half (H2) of 2019, before another 200–300 cut bps in 2020, fully reversing the initial 700 bps hike in 2014. This should take average NIMs for banks under coverage to 4.5-5.0% by 2024 from 5.5-6.9% over the fiscal year (FY) 2017/18,” the company analyzed.

This analysis was published on August 19, three days before CBE announced it is cutting its key rates by 1.5%. For the time being, the government is the one really benefiting from the measure since the interest burdens on its securities issues (short, mid and long terms) have fallen according to the type of issue.

Not all commercial banks have already complied with the new rate adjustment. Those up-to-date so far are state-owned institutions such as National Bank Egypt and Misr Bank. Arbitrations still need to continue within other institutions, depending on the structure of their credit portfolios, the demand for credit by economic agents and the effects of the recent change on the banks' financial results.

The rate cuts do not totally satisfy investors who are hoping for a further easing of rates. However, a further loosening of rates is subject to approval from the Monetary Policy Committee. In the meantime, banks still need to assess the impacts of the recent application of the International Financial Reporting Standard IFRS 9, and a new method for calculating interest expenses on investments in government securities.

Idriss Linge