Egyptian bank lending is projected to jump 25% in 2026, S&P Global said in its latest Egyptian Banking Outlook. While loan growth is expected to accelerate, outsized profitability is fading as the Central Bank of Egypt continues its monetary easing cycle. Return on equity (ROE) is expected to normalize at 20% by 2026, down sharply from a peak of 39% in 2024.

Why it matters: The era of “easy money” for banks is drawing to a close. Lenders have bolstered their earnings over the last few interest-rate-high years by parking excess liquidity in high-yield government bonds. With the central bank now cutting rates, that low-effort income stream is shrinking, forcing banks back into the more competitive business of offering private-sector corporate loans to defend their margins.

The breakdown

Growth drivers: S&P expects a recovery in private-sector credit, but government and public-sector borrowing will remain the main engine of loan growth amid persistent funding needs. SMEs are also expected to contribute, even after losing market share over the past two years.

Macro tailwinds: The lending rebound is supported by a strengthening macro backdrop. Real GDP growth is forecast to rise to 4.8% in FY 2025-26, up from 4.4% a year earlier, supported by sustained momentum in tourism. Financing conditions are also expected to ease, with interest rates projected to fall to 18% by June 2026 and average inflation seen slowing to 12.1% this year, down from 20.1% in 2025.

Lower rates should support investment by reducing borrowing and production costs, former Industrial Development Bank Chair Maged Fahmy tells EnterpriseAM. “Encouraging investment naturally means expanding bank loan portfolios,” he said, adding that companies are likely to lean more heavily on debt to finance capex.

Asset quality is expected to remain stable, with non-performing loans holding at around 2% over the next 12–18 months, down from 2.9% in December 2023. A large and growing deposit base will continue to support liquidity and funding, S&P said, citing strong household deposits, which account for roughly 74% of private-sector deposits.

ROE to ease, but capital strength offers a cushion

Profitability to normalize: Returns are set to cool from recent highs, with ROE projected at 20% in 2026, down from an estimated 24% in 2025 and well below the 2024 peak. S&P attributes the decline to narrowing net interest margins as rates fall and funding costs reprice more quickly.

The pressure on profitability should be offset by lower credit losses, with the cost of risk expected to ease to 1.3% this year from 2.5% in 2024, alongside strong capital buffers. The sector’s capital adequacy ratio stood at 18.6% as of June 2025, comfortably above the 12.5% regulatory minimum.

Despite the squeeze, Fahmy argues that a slight dip in profitability is a “natural part of the economic cycle,” given that banks have already amassed significant earnings in recent years by investing in high-yield treasury bills and bonds.

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