According to Fitch, numerous banks from the GCC are seeking to acquire Egyptian banks, driven by the relatively high growth rates available in Egypt compared to their domestic markets.
Expansion of Gulf banks in Africa
Global rating agency Fitch Ratings reports that banks from the Gulf Cooperation Council (GCC) are looking to expand into other international markets, particularly Egypt, to diversify their business models and increase profits. Many GCC banks are pursuing acquisitions of Egyptian banks due to the country’s relatively higher growth rates compared to their home markets.
After several decades of rapid economic growth, the banking sector in GCC countries has reached a stage of maturity, fueled primarily by commodities. However, the growth potential of Egypt’s banking sector is expected to be greater in the coming years. The largest GCC markets have a banking sector assets-to-GDP ratio of over 200 %, compared to less than 100 % in Egypt.
Larger market volume in Egypt
The collective population of the GCC was 56.4 million in 2021, while Egypt’s population is already approaching 115 million and is projected to reach 160 million by 2050. The sheer size of the Egyptian market makes it an attractive proposition for GCC banks.
The exposure of GCC banks to Egypt continues to increase. For example, Fitch estimates that Turkish and Egyptian assets represent 19.8 % of the total portfolio of Kuwait Finance House. Emirates NBD, one of the largest banks in the UAE, is not far behind with 16.6 %. Turkish and Egyptian assets now account for over 10 % of Qatar National Bank’s portfolio. Turkey is also considered an attractive market for similar reasons as Egypt.
GCC banking giants may also be more interested in Egyptian markets due to the more positive economic outlook emerging in the country after a prolonged period of economic distress.
Liberalization of key sectors in the Egyptian economy
Egypt has long struggled to promote private enterprise and growth due to the military’s dominance over the civilian economy. Cairo found itself in particular difficulty after the COVID-19 pandemic, which saw tourism revenues plummet and contributed to a sharp decline in foreign currency inflows, leading to a severe shortage of U.S. dollars. These currency challenges occurring in a broader macroeconomic context characterized by higher interest rates made it much more difficult and costly for Cairo to repay its dollar-denominated external debt.
This situation forced Egypt to turn to the International Monetary Fund (IMF), which, after lengthy negotiations, finally proposed a 3 billion USD rescue plan on the condition that Cairo liberalizes several aspects of its economy, including its foreign exchange market. The European Union also unveiled 7.4 billion USD in financial aid last March.
Encouraging economic prospects
While these reforms have led to the Egyptian currency falling to historically low levels and undoubtedly caused short-term economic difficulties, Fitch Ratings is optimistic about their effectiveness. Inflation is expected to drop to 23 % by June 2025, less than half of its current level, while the Egyptian banking sector should be supported by portfolio flows, remittances, and higher tourism revenues.
According to Fitch Ratings, GCC banks are increasingly interested in Egyptian markets due to the improvement in Egypt’s macroeconomic environment and the opportunities offered by the authorities’ privatization program.
