The Egyptian banking sector stands at the heart of the country’s financial system.
Egypt is a bank-oriented economy, not a market-oriented one. In advanced markets, companies primarily raise financing directly through the stock and bond markets, thereby reducing their reliance on the banks. In Egypt, however, the banks dominate financial intermediation, carrying the burden of financing government deficits, business, industry and household needs.
This concentration of responsibility makes the structure of the banks’ balance sheets an important indicator of the sector’s stability and the economic readiness for growth.
By the end of December 2024, the combined assets of the banking sector had reached LE20.8 trillion. This figure reflects growth, resilience, and expansion. Taking a closer look, the numbers point to a system that is highly liquid but cautiously channels its resources in ways that prioritise stability in meeting the needs of the economy.
A striking feature of the banks’ aggregate financial position is the overwhelming role of securities and investments in treasury bills. Egypt’s banks hold LE6.66 trillion in these instruments, equal to nearly one-third of their total assets.
When compared to customer deposits, the scale is even more sobering, with government securities alone accounting for almost half of total deposits at about 49.4 per cent. In other words, half of the money that households and companies entrust to the banks is directed towards buying treasuries aimed at financing the government’s deficit. While this supports fiscal sustainability in the short term, it raises serious concerns about whether the banking system is fulfilling its essential role as a financier of growth and development.
The loan-to-deposit ratio provides further evidence. At about 62 per cent, this appears healthy and also conservative compared with international norms. But in Egypt’s bank-dominated financial system, conservatism comes at a price. A lower ratio means that a considerable portion of deposits instead of being deployed as loans to businesses and industry is left underutilised or diverted into safer government paper.
This represents a central policy dilemma. At a time when Egypt needs to expand its industrial production, create jobs, substitute for costly imports, and develop an export base, the banks are opting for the safer route of financing deficits rather than enterprises. The result is that the economy loses the chance to strengthen its productive capacity.
International experiences in this regard show that Egypt is missing a golden opportunity by opting for the less risky option. Turkey, for instance, has often kept loan-to-deposit ratios above 90 per cent. Its banks have been encouraged through regulations, incentives, and development policies to actively direct deposits into lending. A large portion of this credit has gone to industry and manufacturing, helping Turkish companies expand their export capacity.
This focus has contributed to Turkey becoming a leading exporter of textiles, automotive parts, and machinery. The key lesson is not to blindly copy Turkey’s policies, as the country faces its own unique issues, but to explore how a bank-centred system can be leveraged to enhance industrial competitiveness.
India offers another useful example. Indian banks, especially state-owned ones, have been required to dedicate a share of their portfolios (40 per cent for commercial banks and 75 per cent for regional rural banks) to “priority sectors” that include manufacturing, agriculture, small enterprises, and infrastructure. By institutional design, the country’s banks are not permitted to neglect these areas in favour of easier or safer investments. The policy has not been faultless as sometimes it has led to bad loans, but it has undeniably created the financial backbone for India’s rapid expansion in pharmaceuticals, IT services, and manufactured exports.
Morocco provides a closer regional example. The Moroccan banks, under the guidance of the Central Bank, have actively extended credit to industrial and export-oriented enterprises. The country’s financial system is not radically different from Egypt’s, but Moroccan policymakers have insisted that the banks balance profitability with development objectives.
The result is a banking sector that has helped the country establish places in automotive and aerospace supply chains, as well as renewable energy projects. Morocco demonstrates that in a middle-income, bank-dominated economy, it is possible to push the banks beyond the comfort zone of financing the state and towards actively promoting industries.
These comparisons should not be taken as mere academic exercises. They underscore the reality that Egypt’s banking system, while stable and liquid, is underperforming its potential role in national development. The dominance of government securities on bank balance sheets means that the sector is, in effect, functioning as a captive financier of the state.
From a narrow perspective, this makes sense: government debt offers high returns with minimal risk weighting, crowding out incentives to lend to the private sector. Yet, from a national development perspective, the opportunity cost is immense. Every pound parked in treasury bills is a pound not invested in machinery, factories, or export capacity. Every pound that reduces the fiscal deficit’s magnitude also leaves the industrial sector more vulnerable and the country more reliant on imports.
The task of Egypt’s banks is not just to remain solvent, liquid, and profitable. It is to transform deposits into investments that create jobs, generate exports, and reduce the economy’s dependence on imports. Criticism, however, should not be read as hostility. This is because Egypt’s banking system is stable today, so it must think about its responsibilities for tomorrow.
A country with Egypt’s challenges cannot afford to have its banks behave as though they were operating in a mature, market-oriented system where capital markets carry the major burden of industrial finance. That is not the reality. The reality is that Egypt’s economy rises or falls, to a large extent, with the choices its banks make.
At the same time, the country faces geopolitical uncertainties in its immediate neighbourhood, including conflicts in the region, instability in trade routes, and shifting alliances that test the resilience of its economy. In such an environment, stability alone is no longer sufficient. If it is bold enough, the banking sector could turn challenges into opportunities, helping Egypt achieve the self-reliance and development that the economy so urgently requires.
The time has come for choices to shift. The banks must move from financing deficits to financing development. For this shift to happen, policymakers need to send the right signals. Regulatory incentives, such as differentiated reserve requirements or lower risk weights for loans to priority sectors, could make productive lending more attractive. The Central Bank of Egypt could encourage longer-term credit for industry by offering partial guarantees or refinancing schemes, reducing the risks that currently push banks toward treasury bills. And most importantly, the fiscal authorities should gradually reduce their reliance on banks for deficit financing, freeing up room for credit to flow to the industrial sector.
To sum up, stability should remain the foundation, but development must become the goal.
The writer is a banking consultant.
* A version of this article appears in print in the 28 August, 2025 edition of Al-Ahram Weekly
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