How Egypt's banking sector is coping with Covid-19

Quarantine measures have been extended in Egypt, deepening the impact of the coronavirus on businesses, and small and medium-sized enterprises (SMEs) in particular. The country’s banks are adapting to the crisis through increased digitalisation, but will this prove a lasting change?

As of May 13, Egypt has had 10,093 confirmed cases of Covid-19 and 544 deaths as a result of the virus.

On March 25 the government mandated a partial lockdown, including a curfew from 8.00 pm to 6.00 am for an initial period of two weeks.

Some of these measures were relaxed on April 23, the first day of Ramadan: the curfew was shortened by an hour, and shopping centres and businesses are now allowed to open on weekends until 5.00 pm.

The lockdown was expected to last until the end of Ramadan. However, Mohamed Awad Tageldin, Egypt’s presidential adviser for health affairs, told local media on May 10 that more stringent lockdown measures may need to be imposed as the number of cases continues to rise.

In economic terms, on May 11 President Abdel Fattah El Sisi passed a new law increasing Egypt's state budget by LE10bn ($635m) during the current fiscal year. This extra money will partly be used to cover the wages of workers affected by the lockdown.

This is in addition to an LE3bn ($190m) initiative from the country’s finance ministry, which was also launched on May 11 to help businesses in the tourism sector cover operational costs and workers’ salaries. This support will come in the form of government-backed loans.

The IMF has also approved a $2.8bn package of financial assistance for the Egyptian government, which had been requested in late April.

According to a statement made by the IMF, the funds will be used to “help alleviate pressing financing needs, including for health, social protection, and supporting the most impacted sectors and vulnerable groups”.

IMF managing director Kristalina Georgieva had previously praised Egypt’s decisive economic response to the Covid-19 outbreak, echoing comments from UN secretary-general António Guterres who praised the country’s fiscal flexibility and expanded social safety net programme.

SMEs receive external funding

SMEs play an important role in the Egypt economy. However, they are also some of the firms most vulnerable to the effects of the Covid-19 pandemic.

In recognition of this, on May 12 QNB Alahli, Egypt’s second-largest private bank, received $100m in financial aid from the European Bank for Reconstruction and Development (EBRD), which will be lent to businesses most affected by the Covid-19 pandemic, in particular SMEs.

This is part of the EBRD’s Coronavirus Solidarity Package, issued by the bank to existing customers as a result of the pandemic.

The EBRD will also increase QNB Alahi’s existing trade finance limit by $100m to $250m under its Trade Facilitation Programme, which will go some way to helping absorb the increased demand for import and export transactions.

Also on May 12, it was announced that the European Investment Bank and Banque du Caire had signed a $100m financing agreement which aims to boost competitiveness in SMEs across different manufacturing and service segments, with a view to sustaining 4000 jobs at 100 companies.

More broadly, before the pandemic the Central Bank of Egypt made expanding lending to SMEs a priority, announcing measures from June 2016 which capped interest rates for small firms and medium firms at 5% and 12%, respectively, and set a 20% target for the share of SME loans in banks’ lending portfolios by 2020.

To date, SMEs have received LE160bn ($10.1bn) under the initiative, which was renewed for another four years in January.

Lockdown boosts digital banking usage

Patterns of consumer behaviour have changed during almost two months of lockdown, with social distancing rules driving up demand for digital banking services across Egypt.

Institutions including the Arab African International Bank (AAIB), Banque Misr, National Bank of Egypt and BLOM Bank have all increased their electronic service capabilities since March.

Such developments have included facilitating increased use of online banking, mobile bank transfers and e-wallets for contactless payments.

Given that digitalisation is in its infancy in Egypt’s banking sector, there is a possibility that this will prove to be a temporary trend that will not last once social distancing restrictions are lifted.

However, some business leaders in Egypt see the shift towards digital banking as a longer-term progression, which was already under way before Covid-19. “Digitalisation of banking services in Egypt only started in earnest in mid-2019 and has since become a necessity for many during the lockdown. However, uptake will only improve with a more widespread increase in digital penetration and a change in overall consumer mentality,” Sherif Elwy, vice chairman and managing director of the AAIB, told OBG.

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