The outlook for Egypt's banking system will remain negative over the next 12-18 months, Moody's said in a new report. The agency reasons that ongoing political and social tensions will continue to undermine investor, tourism and consumer confidence, creating a difficult operating environment for banks. Moody's envisages subdued credit growth and low business generation for banks with a further deterioration in the asset quality metrics on the back of challenging operating conditions leading to extensive restructuring and rescheduling of loans.
The banks problems are compounded by their heavy and growing exposure to Caa1-rated Egyptian government debt posing a significant credit risk. Furthermore, the government's heavy reliance on local banks to fund the high budget deficit since 2011 ties the banking system's solvency to sovereign default risk.
While Moody's forecasts subdued real GDP growth of 2.6% in 2014, it acknowledges that
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