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Tax change could spur banks to step up private lending, analysts

Saturday 01 December 2018 02:44 PM

Egyptian Banks
Egyptian Banks

A proposed change to the way Egypt taxes bank profits could encourage lenders to boost credit to the private sector and push up yields on Treasury debt, raising its appeal among foreign investors, economic analysts say.

The cabinet last week gave preliminary approval to a proposed amendment to the way bank taxes are calculated by scrapping a provision that lets local banks deduct taxes already paid on treasuries from their bottom-line income tax.

If a final version of the measure is approved by parliament in the coming months as is widely expected, it would raise the cost of buying government securities and could induce banking entities to divert funds away from treasuries to other sectors.

“The law would push banks to lend more toward the private sector,” said Hany Farahat, senior economist at investment bank CI Capital.

Egyptian banks have for years been top-heavy on government lending at the expense of the private sector, economists say.

Banks held 2.35 trillion Egyptian pounds ($131.58 billion) in government securities at the end of September compared with 804.8 billion pounds in outstanding loans to the private business sector.