Net foreign assets in Egypt’s banking sector dropped to USD 5.23 bn in December, down from USD 5.96 bn in November, marking a monthly decline of 12.2%, according to data from the Central Bank of Egypt. This follows a sharp drop in November when net foreign assets fell 35.2% due to an increase in demand on FX resources.

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Driving the fall: The decline was driven by a widening deficit in the net foreign assets of commercial banks, which widened to USD 6.4 bn in December, compared to USD 5.8 bn in November. This came on the back of a jump in foreign liabilities in commercial banks, which came in at USD 29.6 bn.

We have an idea why: There’s plenty of local seasonal factors including — but not limited to — Egypt always has a massive import bill kicking in two or three months ahead of Ramadan. Another factor is the companies that usually look to acquire FX in December so they can pay it out in dividends to foreign investors as the year comes to a close. Businesses also look to build up their FX stock during the period as a way to manage FX losses or gains and prepare for the expenses that come with the new year. The end of the year also usually sees an uptick in those traveling abroad — in a country of 110 mn people, there’s 5-6 mn that qualify as wealthy who often take an end-of-year vacation and rely on FX to pay for hotels, meals, etc…

Over at the central bank: The Central Bank of Egypt recorded a net foreign asset surplus of USD 11.7 bn in December — a slight dip from the USD 11.8 bn recorded in November. Foreign assets inched up to USD 45.76 bn, but it wasn’t enough to offset a rise in foreign liabilities which rose to USD 34.1 bn.

The country’s net foreign asset surplus has shrunk 63% since its May 2024 peak of USD 14.3 bn, while commercial banks have now clocked in their fifth consecutive month recording a net foreign asset deficit.

Remember: The May peak marked the first time that net foreign assets recorded a surplus in over two years, which followed the second and final tranche of the USD 35 bn Ras El Hekma agreement bringing in some USD 14 bn of fresh inflows. Before this, the country’s net foreign asset position had been in a deficit since February 2022, when the Russian invasion of Ukraine triggered a shock capital outflow of almost USD 20 bn.

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