Egypt’s banks remain resilient despite regional tensions

CAIRO - 17 March 2026: Fitch Ratings has reaffirmed the strength of Egypt’s banking sector, highlighting its solid financial position and ability to withstand indirect shocks stemming from the ongoing conflict with Iran.

According to a report released on Monday, the sector’s resilience is supported by strong foreign currency liquidity, healthy profitability levels, and well capitalized banks. These factors collectively enhance the system’s capacity to absorb external pressures.

While Fitch noted that risks linked to exchange rate fluctuations and partial foreign capital outflows persist, it stressed that their impact on banking stability is now more limited compared to previous periods. The agency added that banks’ issuer default ratings and standalone credit profiles remain closely tied to Egypt’s sovereign rating, currently at B with a stable outlook.

The report indicated that Egypt’s exposure to geopolitical developments is expected to be largely indirect. However, it could still be felt through macroeconomic challenges such as dependence on energy imports, potential pressure on remittance inflows, currency volatility, rising subsidy costs, and tighter global financing conditions.

Under Fitch’s base case scenario, assuming the conflict lasts less than one month and oil prices average $70 per barrel in 2026, risks to Egypt’s sovereign rating are expected to remain contained. However, a prolonged conflict or higher oil prices could place additional pressure on both the sovereign rating and the banking sector.

Fitch also highlighted that foreign holdings of Egyptian pound treasury bills remain relatively high, reaching around $45 billion by the end of September 2025, or approximately $21 billion excluding banks’ repo transactions.

Meanwhile, the Egyptian pound stood at about EGP 52.4 per US dollar on March 12, reflecting a depreciation of nearly 9 percent since the end of 2025, largely driven by foreign capital outflows.

The agency emphasized that banks’ foreign currency liquidity has significantly improved compared to 2022. Net foreign assets in the banking system rose to around $14.5 billion by the end of January 2026, the highest level since 2012, providing a strong buffer against potential external shocks.

External funding remains limited, accounting for less than 10 percent of total funding sources as of August 2025. Most of this funding consists of medium, and long term loans, which reduces refinancing risks in the short term.

However, Fitch noted that around 33 percent of bank lending is denominated in foreign currency, making capital adequacy more sensitive to exchange rate movements. A 10 percent depreciation in the Egyptian pound typically leads to a 30 to 50 basis point shift in core capital ratios.

The sector’s core capital ratio reached 14 percent by the end of the third quarter of 2025, marking its highest level since 2020 and remaining well above regulatory requirements.

Fitch expects profitability to ease slightly following the decline in interest rates during 2025. At the same time, elevated oil prices could create short term inflationary pressures, slow monetary easing, and push treasury yields higher amid portfolio outflows.

Despite these headwinds, the agency expects banks to maintain strong performance, with return on equity exceeding 20 percent, supporting internal capital generation. The cost of risk is projected to average around 100 basis points in 2026, backed by strong provisioning built since 2022.

However, Fitch warned that any further escalation in regional tensions could lead to a more noticeable deterioration in banking sector performance.