Euromoney Magazine published an insightful article in September 2011 on how Egypt’s central bank and the heads of Egypt’s major banks staved off bank runs, preserved capital and prevented a collapse of the country’s financial sector — all while million-man street protests and rising crime took hold of Cairo. In the article, author Eric Ellis describes how bank executives initiated contingency plans, closing bank branches but simultaneously providing sufficient liquidity to satisfy customer withdrawals.

As an opportunity for international investors, Egypt’s banking sector (like the country itself) remains very attractive as a long-run proposition. The country of 80 million is massively underbanked, with only around 8 million personal bank accounts and 1.2 million credit cards. A September 2011 survey of Egyptian banking executives by Dunia Frontier Consultants revealed that while there is major uncertainty about the country’s current political situation, there is continued optimism about this basic long-run investment thesis.

However, the survey also revealed key anxieties about the country’s current financial and macroeconomic outlook. In early October, the EGX30 main index fell below the 4,000 point level for the first time since April 2009. Additionally, trading volume fell to just US$40 million, making any near-term market turnaround even more unlikely. Declines in foreign investment and revenues from tourism and the Suez Canal have also increased pressure on the country’s FX reserves, which have fallen by more than 30 percent since the revolution, to about US$24 billion in October. Many analysts also point to the country’s widening fiscal deficit and increased unemployment rates as immediate challenges.
To read the Euromoney Magazine article, click here.

(Sources: Dunia Frontier Consultants, Euromoney Magazine, Ahram Online, Bloomberg Businessweek)

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Posted on Thursday, October 13th, 2011 at 11:26 am