The ratings agency said the financial profiles of Egyptian banks remain resilient under its baseline scenario, which assumes the regional conflict lasts less than a month and oil prices average around $70 per barrel in 2026.
However, the sector’s credit profiles remain sensitive to changes in Egypt’s sovereign rating, currently at B with a stable outlook, and could face pressure if the conflict leads to prolonged geopolitical instability or a sharp surge in energy prices.
Fitch noted that Egypt’s exposure to the conflict is expected to remain largely indirect, although the country faces vulnerabilities linked to energy import dependence, potential pressure on the Egyptian pound, remittance flows, and the fiscal cost of energy subsidies.
Since the conflict erupted at the end of February, foreign investors have pulled more than $6 billion from Egypt’s local-currency treasury bills, adding pressure on the exchange rate. The pound was trading at around EGP 52.4 per dollar on 12 March, marking a depreciation of about nine percent since the end of 2025.
Despite these pressures, Egyptian banks have significantly strengthened their foreign-currency liquidity compared with previous geopolitical shocks. The sector’s net foreign assets climbed to roughly $14.5 billion by the end of January 2026, their highest level since 2012.
According to Fitch, this buffer enhances the sector’s ability to absorb portfolio outflows, given the historically strong correlation between foreign portfolio flows and banks’ net foreign asset positions.
The agency also highlighted that Egyptian banks maintain manageable exposure to foreign funding, which accounts for less than 10 percent of total sector funding. Most of this funding is medium- to long-term, reducing near-term refinancing risks.
At the same time, the banking sector remains partly exposed to exchange-rate movements due to the relatively high share of foreign-currency loans, which stood at around 33 percent of total lending as of August 2025.
Fitch estimates that a 10 percent depreciation of the pound typically reduces the sector’s common equity Tier 1 (CET1) capital ratio by 30 to 50 basis points.
Nevertheless, capital buffers remain strong. The sector’s CET1 ratio reached 14 percent by the third quarter of 2025, the highest level since 2020 and comfortably above regulatory requirements.
Fitch said the viability ratings of state-owned lenders such as the National Bank of Egypt and Banque Misr are relatively more exposed to currency-related capital pressure due to tighter buffers above minimum requirements. However, both institutions have strengthened their capital positions since the sharp currency depreciation in early 2024.
Looking ahead, Fitch expects Egyptian banks’ profitability to moderate slightly following the sharp decline in interest rates in 2025. Still, sector performance is likely to remain strong, with return on equity projected to stay above 20 percent, supported by robust internal capital generation.
The agency also expects the cost of risk to average around 100 basis points in 2026, reflecting the sizeable provisioning buffers banks have built since 2022. However, asset quality could deteriorate modestly if higher energy prices and weaker economic conditions weigh on borrowers.
Fitch warned that a prolonged regional conflict or significantly higher oil prices could have a more pronounced impact on Egypt’s economy and, by extension, its banking sector.
In October 2025, Fitch Ratings affirmed Egypt’s long-term foreign-currency Issuer Default Rating (IDR) at B with a stable outlook, citing robust foreign reserves, narrowing current account deficit, and sustained support from the GCC and multilateral partners.
In the same month, global credit rating agency S&P Global Ratings upgraded Egypt’s long-term sovereign credit rating to B from B- for the first time in seven years, citing ongoing economic reforms, improving growth prospects, and stronger external accounts.
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