Banks across Egypt, Morocco, and Jordan face an uncertain 2023

Banks across Egypt, Morocco, and Jordan face an uncertain 2023, marked by global economic instability and monetary policy tightening in the largest developed economies, according to a new report from S&P Global Ratings.

Banks are likely to feel the effects of those competing influences at different times due to their nations' specific risk exposures.

While S&P forecasts that the regions' banks will remain profitable, supported by the positive impact of higher interest rates on revenues, they also see significant risk to that outlook.

The banking system remains vulnerable to the global macroeconomic environment due to its impact on funding costs, tourism flows, commodity prices, and inflation (particularly food inflation). These factors remain an issue despite increased support, demand, and remittance flows from GCC countries, particularly for Egypt and Jordan.

"We expect the cost of risk to remain elevated, while asset quality will slowly deteriorate across the three banking sectors covered in this report due to muted economic growth, higher inflation, and the winding-down of pandemic-related support."

Egypt's growth should continue to slightly outpace peers, with the construction and energy sectors as key drivers. On the downside, exchange rate devaluation is likely to dampen household spending for much of 2023, which explains the lower growth forecast compared to 2021 and 2022.

However, the recent decline in energy prices and the resilience of tourism may soften the financial and operational impact on the banks, the analysts said.