Net foreign assets in Egypt’s banking sector rose 1.6% m-o-m in June, reaching USD 14.94 bn, according to data from the Central Bank of Egypt. June’s figure represents a 15.8% y-o-y increase and continues the positive trend that started back in May, following April ’s brief decline.

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Why do NFA’s matter? Think of NFAs as the banking system’s core financial buffer: The net difference between the foreign currency banks hold (assets like USD and EUR) and what they owe to entities abroad (liabilities). A positive and growing NFA signals health — a strong capacity to cover import bills. In that case, the EGP will generally hold steady or even appreciate. But when NFAs shrink or turn negative, it means we owe more FX than we hold — and that’s when the EGP tends to slide against key foreign currencies.

The numbers behind the trend: Commercial banks’ net foreign assets reached their highest level since February 2021, hitting a surplus of USD 4.9 bn in June, up from USD 4.8 bn in the previous month. Foreign assets in commercial banks edged up to around USD 36.2 bn, from USD 35.5 bn in May and USD 31.3 bn in April, while liabilities inched up to USD 31.3 bn during the month.

The central bank recorded a surplus of nearly USD 10.1 bn in June, up from USD 9.9 bn in May but down from USD 11.9 bn in April. Net foreign assets edged up to nearly 47.4 bn during June, up from USD 47.2 bn a month earlier, while liabilities inched up to USD 37.31 bn, a slight rise from USD 37.28 bn in the previous month.

Foreign investors see real improvement in economic conditions: Most foreign investors are taking note of the strengthening economic fundamentals, particularly noting the current account balance nearing zero — taking margin of error into account — in the 1Q this year, Al Ahly Pharos’ Head of Research Hany Genena told EnterpriseAM. “For any foreign investors, this is a dream that has come true — that Egypt has a balanced current account, despite the deficit in the oil balance and the dip in Suez Canal revenues.”

This increase directly reflects the current momentum in the local market and indicates strong incoming FX inflows, banking expert Mohamed Abdel Aal told us. Having a surplus means the banking sector’s assets with non-residents abroad exceed its debt to them, Abdel Aal noted. This simply means that “the sector has not fully utilized its external borrowing capacity and has also successfully boosted its foreign deposits,” Abdel Aal elaborated.

Foreign demand for local debt is still in play: “In June, foreign investors were net buyers in the secondary market of Egyptian treasuries by EGP 1.2 bn due to the attractive treasury yields offered, despite some mid-month foreign outflows due to the Israel-Iran war,” HC Securities’ Heba Mounir told EnterpriseAM. Another point she highlighted was Egypt’s USD 1 bn sovereign sukuk issuance in June, which was fully subscribed by Kuwait Finance House.

However, there is another angle to consider: As long as the net foreign assets are rising, this means that banks are not disbursing the FX inflows. Instead, they are holding onto them in anticipation of the potential exit of these funds again, Genena noted, adding that this strategy provides security and safeguards the state in case of events similar to those witnessed in 2022.

REMEMBER- Net foreign assets hit a record high in March, which surpassed the previous peak of USD 14.3 bn recorded in May 2024 — courtesy of the second and final tranche of the USD 35 bn Ras El Hekma agreement. Before that, Egypt had been in a prolonged net foreign asset deficit since February 2022, when the outbreak of the war in Ukraine triggered capital outflows of around USD 20 bn.

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