Egypt’s financial leasing sector hit by inflation and high-interest rates

Egypt’s inflation and high-interest rates have led to a decline in the expansion of investment companies. The cost of financing economic activities has increased, and the economic feasibility of many projects has decreased. As a result, investors are resorting to vessels with a fixed return that are free of risks.

To curb inflation, which hit record levels, reaching about 40.3% last May, the Central Bank of Egypt raised the interest rate by 10% during the last 15 months, including 8% last year and 2% in March.

The current economic conditions have affected Egypt’s financial leasing sector, similar to other sectors. The number of financial leasing contracts has declined, and customers are retaining cash liquidity due to the decrease in assets available for financial leasing. This decrease is due to some obstacles, such as the import crisis.

During the first quarter of this year, the number of financial leasing contracts in Egypt decreased by nearly 50% to reach 507 contracts, compared to 994 contracts during the first quarter of 2022. However, the value of financial leasing contracts increased during the same period to reach about EGP 28.1bn, compared to EGP 21.8bn during the comparative period.

Looking at March alone, the Financial Regulatory Authority (FRA) report indicated that the total value of contracts declined to EGP 7.02bn, compared to EGP 10.4bn in March 2022, a decrease of 32.6%.

Furthermore, the number of financial lease contracts decreased during March 2022 by 50.3%, reaching 157 contracts compared to 316 contracts in March of the same year.

Aladdin El-Afifi, CEO of the non-bank financing sector at EFG Finance, stated that each non-bank financial activity has different dimensions and is affected by economic repercussions in a unique way.

He added that factoring is less severely affected, but with the cessation of imports, financial leasing activity is impacted. The impact on real estate financing has been prolonged, leading to a decline in real estate as an investment tool at present, particularly with the difficulty of liquidation. On the other hand, microfinance and consumer financing activities are still reaping the benefits of high inflation.