Egypt’s recent increase in its expat remittances has had a positive effect on recipient households, on the broader economy as well as Egyptian banks as it supports their deposit-based funding profile and enhances their lending capacity, according to Moody’s.
On 15 March, the Central Bank of Egypt (CBE) reported that monthly workers’ remittances for the six months leading up to December 2020 went up by 13.5 percent, totalling $15.5 billion, up from $13.7 billion a year earlier.
In its credit outlook report, Moody’s said that the increased remittances, alongside the bank’s access to long-term funding from foreign financial institutions, back Egypt’s foreign-currency liquidity at a time when traditional sources of foreign currency have slumped as a result of the COVID-19 crisis.
The report pointed out that Egyptian banks are primarily funded by customer deposits, and increased remittances are credit positive for the banks because they contribute to higher deposit inflows, provide a stable and low-cost funding base as well as diversify the depositor base.
Moreover, technological advances, greater use of electronic channels – which reduce transaction costs – and pandemic-related limitations on travel by overseas Egyptian workers, which have increased their ability to save, have facilitated growth in remittances, according to the report.
Moody’s expected remittance inflows to Egypt maintain their positive momentum thanks to the wider use of electronic transfers.
In addition, the positive effect on household incomes creates new lending opportunities for banks and supports households’ debt repayment capacity, according to the report.
Increased remittances also support Egyptian banks’ foreign-currency liquidity, while the pandemic severely depresses other foreign-currency sources, such as tourism revenues.
Furthermore, banks’ ongoing access to long-term funding from international banks and financial institutions also bolsters their foreign-currency liquidity.
According to the report, over the past 12 months, several Egyptian banks have obtained foreign currency funding from international funders.
