The research department of HC Securities & Investment has released its latest evaluation of Commercial International Bank stock (COMI), projecting that Egypt’s banking sector profitability will benefit from a slower monetary easing cycle and a lower required reserve ratio (RRR).
Heba Monir, economist and financial analyst at HC, said: “Egypt’s economy remains resilient amid geopolitical tensions; however, we expect the easing cycle to be delayed. Egypt’s external position showed strength at the start of the year, prior to the outbreak of the US-Israeli war against Iran, with net international reserves exceeding a record $52bn in February and the banking sector’s net foreign asset (NFA) position surpassing $29bn in January.
“However, the war triggered net foreign outflows of around $7.09bn from Egypt’s T-bill secondary market since 19 February, leading to an approximately 11% depreciation of the Egyptian pound against the US dollar to EGP 53.6, reflecting exchange rate flexibility. The conflict also drove a roughly 43% surge in oil prices to $102 per barrel, prompting the government to raise domestic prices of diesel, LPG cylinders, and octane gasoline by an average of around 19%, in order to keep the budget deficit close to its target of 7.3% of GDP, given that the FY2025/26 budget assumptions were based on $75 per barrel and an exchange rate of EGP50/$.
“Accordingly, we have revised our estimate for annual headline inflation in March to 14.3% year-on-year and 2.4% month-on-month, and now expect average inflation of around 14-15% year-on-year in 2026, compared to our previous estimate of 10-11% prior to the conflict. This, in our view, could delay the easing cycle.
“That said, we believe the Egyptian economy is in a stronger position than at the onset of the Russia-Ukraine war in February 2022, which triggered $21bn in net foreign treasury outflows. The external position is now more robust, with an NFA position of $29.5bn as of January 2026 versus $0.62bn in January 2022, alongside a flexible exchange rate and the absence of a parallel foreign exchange market.
“Nevertheless, the overall impact will depend on the duration of the war, as Egypt’s foreign currency sources, including tourism, Suez Canal revenues, and worker remittances, could be affected, particularly remittances from Egyptian expatriates in GCC countries. Our baseline assumption is that the conflict will end before the close of the second quarter of 2026.”
Monir added: “We expect Egypt’s banking sector profitability to benefit from a delayed easing cycle and a lower RRR. The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) began the year with a 100 basis point rate cut, bringing total policy rate reductions to 825 basis points since the beginning of 2025, compared to cumulative hikes of 1,900 basis points since the tightening cycle began in 2022.
“The CBE also reduced the required reserve ratio by 200 basis points to 16% on 12 February to stimulate liquidity and lending activity. Supported by resilient banking fundamentals, total sector assets grew by approximately 24% year-on-year to EGP 24trn as of June 2025, representing around 132% of GDP in FY2024/25, and we expect this growth trend to continue.
“Following the outbreak of the war, we have revised our inflation outlook and expectations for further rate cuts in 2026 to around 200 basis points at best, contingent on a resolution of the conflict by the second quarter of 2026. Over the past 12 months, large banks have reduced interest rates on three-year certificates of deposit to 16-17%, down from above 20% following the March 2024 devaluation. We still consider these levels attractive, implying a positive real interest rate of 4-5%.
“Accordingly, we forecast customer deposits to grow by approximately 12% year-on-year to EGP 17.9trn by December 2026, compared to an estimated 17% growth by December 2025. Over the past five years, private sector loans as a share of total market loans declined to around 43% in June 2025 from 62% in June 2020, amid successive global and domestic economic challenges.
“In the near term, we do not expect this ratio to recover before the second quarter of 2027, as the conflict is delaying monetary easing. In 2025, working capital loans recorded healthy growth, which we expect to continue into 2026, supported in part by the approximately 11% depreciation of the Egyptian pound year-to-date.
“We therefore expect total sector loans to increase by around 17% year-on-year to EGP11.6trn by December 2026, compared to an estimated 19% growth by December 2025. We also forecast the loans-to-deposits ratio to rise to approximately 65% in December 2026, up from 62% in June 2025.
“As for profitability, we expect the sector’s average net interest margin (NIM) to decline slightly to 5.5% from 5.8% in June 2025, reflecting relatively lower year-on-year treasury yields despite their recent post-war increase. Similarly, we expect average return on assets (ROA) and return on equity (ROE) to ease to 2.2% and 33%, respectively, from 2.6% and 39% in June 2025.
“Regarding asset quality, we believe banks remain well provisioned; however, we anticipate a 100-200 basis point decline in the capital adequacy ratio (CAR), mainly due to the depreciation of the Egyptian pound.”