Central Bank of Egypt

Transcription

1 Central Bank of Egypt Annual Report 2014/2015

2 Board Members Mr. Tarek Amer Governor and Chairman of the Board Mr. Gamal Mohamed Negm Deputy Governor Ms. Lobna Helal Deputy Governor Mr. Sherif Samy Chairman of EFSA Mr. Mahmoud Mohamed Hussein Representative of the Ministry of Finance Ms. Hala El Said Economic Expert Mr. Yahia Dakrouri Legal Expert Dr. Laila Ahmed El Khawaga Economic Expert Mr. Kamal Abu El Khair Financial and Economic Expert

3 Preface I have the pleasure to present the Annual Report of the Central Bank of Egypt (CBE) for FY 2014/2015. The report highlights and analyzes major domestic economic developments, in the areas of economic growth, inflation, State budget, balance of payments, and external trade. It also sheds light on CBE's activities, along with the main monetary, credit and banking developments. Over the course of FY 2014/2015, Egypt's real GDP growth (at factor cost) picked up to 3.1 percent (from 2.2 percent in FY 2013/2014). The higher growth rate reflects the noticeable improvement in economic performance, especially in Q1 (July/Sept.) and Q2 (Oct./Dec.) in which the growth rate reached 4.5 percent and 3.7 percent, respectively. However, such an increase was met by a sluggish growth in Q3 (Jan./March) and Q4 (April/June), registering only 2.2 percent and 2.1 percent, in order. Meanwhile, the real GDP growth at market prices augmented to 4.2 percent in the year under review, compared to 2.2 percent in the year of comparison. As for monetary policy management, the CBE continued to pursue price stability, being the ultimate objective of the monetary policy, by working to bring inflation to such appropriate and stable levels, so as to help bolster confidence, stimulate investments and spur economic growth to targeted levels. The decisions taken by the Monetary Policy Committee (MPC) during the year (8 meetings in total) were consistent with the inflation developments and inflationary pressure forecasts. To elaborate, the MPC decided in its meeting on July 17, 2014 to raise the CBE 's key interest rates by 100 bps. The decision came after the government had revised up the prices of several regulated items within the CPI basket. These rates remained effective until the Committee decided in its meeting held on January 15, 2015 to cut them by 50 bps each, as upside risks to the inflation outlook continued to be contained on the back of lower international oil and food prices. Consequently, the overnight deposit and lending rates reached 8.75 percent and 9.75 percent, respectively. Moreover, the CBE's main operation rate and the discount rate posted 9.25 percent each. These rates were kept unchanged till the end of the reporting year. At the time of preparing this Report, the Committee stabilized these rates in its meetings on July 30, September 17, and October 29 of However, in its meeting held on December 24, 2015, the MPC decided to raise all of the aforementioned key rates by 50 bps, to address inflationary pressures and anchor inflation expectations. Concerning the forex market, and within the framework of eliminating the parallel market and curbing dollar speculations, the CBE allowed the US dollar exchange rate to gradually appreciate vis-à-vis the Egyptian pound at periodic FX auctions launched for banks since December Moreover, the CBE set a maximum limit (daily and monthly) for foreign currency cash deposits. The volume I

4 II of trade through periodic FX auctions reached US$ 6.6 billion during FY 2014/2015, thus bringing the volume of periodic auctions, since the inception of this mechanism till the end of June 2015, to US$ 15.4 billion, with a monthly average of US$ million. In addition, the CBE holds exceptional auctions, as dictated by market needs. Since the inception of this mechanism till the end of the reporting year, the CBE held five exceptional FX auctions, at a total value of US$ 5.3 billion. The CBE sold a total of US$ 1201 million in the interbank market in the reporting year to meet all pending demands at banks for financing the import of foodstuffs, raw materials, and pharmaceuticals. The weighted average of the US dollar interbank rate posted LE at end of June 2015 (against LE at end of June 2014), with a 5.2 percent drop in the value of the Egyptian pound during the year. At end of November 2015, during the preparation of the Report at hand, the weighted average of the US dollar reached , with a decrease of 2.6 percent in the value of the Egyptian pound, relative to the end of June. Net international reserves (NIR) increased by US$ 3.4 billion or 20.3 percent in FY 2014/2015, to end the year at US$ 20.1 billion and to cover 4.0 months of merchandise imports. However, at the time of preparing this Report, NIR retreated to US$ 16.4 billion, covering 3.2 months of merchandise imports at end of November As regards banking developments, the CBE finished - in agreement with banks - the implementation of Basel II standards according to the BoD's Decision on December 18, As part of the efforts of the CBE to apply the international best practices related to banks' internal controls and promote the governance concept at the banking system, the BoD approved in its meeting dated 19 th of August 2014 the regulations of developing banks' internal controls. These regulations were complementary to those actually applied at banks and in case of any conflict between the two versions, the latter will take precedence. In line with Basel Committee's proposal to introduce a ''leverage ratio measure'' to supplement the risk-based capital adequacy assessment (in accordance with the timescale for applying Basel III accords), the CBE issued a discussion paper in this regard to banks, attached with the Quantitative Impact Studies (QIS). The regulations pertaining to financial leverage were issued on 14 July The aggregate financial position of banks operating in Egypt (excluding the CBE) reached LE billion at end of June Equities registered LE billion, deposits LE billion, investments in securities and bills LE billion, and loan and discount balances LE billion.

5 III Moving to banks' financial soundness indicators, the capital adequacy ratio at banks, according to Basel II requirements, reached approximately 13.5 percent at end of June 2015, against an established minimum ratio of 10 percent. Return on average assets posted 1.3 percent, return on average equities 18.9 percent, and net interest margin 3.7 percent (against 1.0 percent, 14.5 percent, and 3.8 percent, respectively, a year earlier). The ratio of non-performing loans and facilities to total loans and facilities reached 7.6 percent at end of June 2015, against 8.5 percent a year earlier. Loan provisions/non-performing loans registered 98.7 percent, against 98.9 percent. Transactions with the external world unfolded an overall BOP surplus of US$ 3.7 billion (against only US$ 1.5 billion a year earlier). This was due to the fact that the capital and financial account recorded a net inflow of US$ 17.6 billion (against US$ 5.3 billion), while the current account deficit increased to US$ 12.2 billion (from US$ 2.7 billion). It is worthy to note that at the time of preparing this Report, a new CBE leadership took office and a new BoD was formed. In addition, the coordinating council of the monetary policy was reshuffled. A number of decisions were issued to adjust and regulate the forex market and achieve monetary stability. Within this context, the decisions issued in February 2015 regarding the maximum limits of cash deposit and withdrawal in foreign currencies were abolished. Furthermore, the CBE decided on March 14, 2016 to adopt a more flexible exchange rate policy that reflects the supply and demand mechanisms to address the distortions in the forex market, which affected trading in foreign currency at the banking system. Hence, the Egyptian pound was devalued by 12.7 percent in the FX auctions held by the CBE, bringing the weighted average of the US dollar exchange rate to LE On March 17, 2016, the key policy rates were raised by 150 bps, thus bringing the overnight deposit and lending rates to percent and percent, in order. The CBE's main operation rate and the discount rate were also raised to percent, each. Finally, I would like to extend my gratitude to the staff of the CBE and the banking system for their sincere efforts. May God help us serve our dear country and further its progress and prosperity. The CBE Governor Tarek Hassan Amer

6 Contents of the Annual Report Main Indicators of the Performance of Egyptian Economic Sectors A-B Executive Summary Chapter 1 Central Bank of Egypt 1/1 Monetary Policy 1 1/2 Reserve Money 4 1/3 Payment Systems and Information Technology (IT) 7 1/3/1 RTGS and SWIFT Local Services 9 1/4 Domestic Liquidity and Counterpart Assets 10 1/5 Supervision Sector 14 1/6 Management of the Foreign Exchange Market and International Reserves 22 1/6/1 Foreign Exchange and Dollar Interbank Markets 22 1/6/2 Management of International Reserves 23 1/7 Domestic Public Debt and External Debt 24 1/7/1 Domestic Public Debt 24 1/7/1/1 Debt of the Government (Net) 24 1/7/1/2 Net Debt of Public Economic Authorities 26 1/7/1/3 Net Debt of NIB 26 1/7/1/4 Intra-debt 27 1/7/2 External Debt 28 1/8 Human Resources Development (HRD) 34 1/8/1 Activity of EBI 34 1/8/2 CBE Staff Programs 37 Chapter 2 Banking Developments 2/1 Financial Position 39 2/2 Deposits 42 2/3 Lending Activity 43 2/4 Cash Flows 45 2/5 Bank Performance Indicators 47

7 Chapter 3 Macroeconomic Developments 3/1 Gross Domestic Product (GDP) 51 3/1/1 Labor Force, Employment and Unemployment 55 3/2 Inflation 56 3/3 Public Finance 60 3/3/1 Budget Sector (Administrative System, Local Administration and Service Authorities) 60 3/3/2 Consolidated Fiscal Operations of the General Government 64 3/4 Balance of Payments and External Trade 65 3/4/1 Balance of Payments 65 3/4/1/1 Current Account 67 3/4/1/2 Capital and Financial Account 72 3/4/2 External Trade 74 3/4/2/1 Distribution of Merchandise Exports 74 3/4/2/2 Distribution of Merchandise Imports 77 3/4/2/3 Geographical Distribution of External Trade 80 3/4/2/4 Breakdown of External Trade by Main Commodity 83 3/5 Non-Banking Financial Services Sector 87 3/5/1 Stock Market 87 Annex Statistical Section 91

8 A Main Indicators of the Performance of Egyptian Economic Sectors Real Sector Fiscal Year 2013/ /2015 Real GDP growth rate at factor cost (%), of which : The share of the private sector (percentage point) Real GDP growth rate at constant market prices (%), of which: Share of private consumption (percentage point) Share of public consumption (percentage point) Share of capital formation (percentage point) Share of net external demand (exports of goods and services - imports of goods and services) (percentage point) CPI inflation (urban) July/June (%) PPI inflation, July/June (%) Financial & Monetary Sector Domestic liquidity growth rate M2 (%) Growth rate of time & saving deposits in local currency (%) Growth rate of foreign currency deposits (%) Foreign currency deposits/ Total deposits (dollarization rate) (%) Net claims on the government /Total credit (%) Private business sector credit/ Total credit (%) Household sector credit/ Total credit (%) Public business sector credit/ Total credit (%) Change in net claims on the government/change in total credit (%) Change in private business sector credit/change in total credit (%)

9 B Main Indicators of the Performance of Egyptian Economic Sectors (contd.) Fiscal Year 2013/ /2015 Change in household sector credit/ Change in total credit (%) Change in public business sector credit/ Change in total credit (%) Net international reserves (US$ mn) at end of the period NIR in months of merchandise imports Banks Financial Soundness Indicators (FSIs), of which: Capital adequacy ratio (%) Non-performing loans/total loans (%) Loan provisions/ Non-performing loans (%) Return on average assets* (%) Return on average equities* (%) External Sector Trade Balance/GDP (%) Service Balance/ GDP (%) FDI in Egypt (net)/gdp (%) Net transfers/ GDP (%) External Debt External debt/ GDP (%) Short-term external debt/total external debt External debt service/exports of goods and services (%) Budget Sector Revenues/GDP (%) Expenditure/GDP (%) Total wages/total public revenues (%) Primary deficit**/gdp (%) Overall deficit/gdp (%) Gross domestic public debt/gdp (%) * According to the latest audited financial statements for FY 2013 and The fiscal year ends on June 30 for public sector banks and on December 31 for other banks. ** Overall deficit, excluding interest payments.

10 C Executive Summary The Annual Report for FY 2014/2015 displays the CBE s activity and the main monetary, credit and banking developments at the domestic level. It also sheds light on major economic developments, with particular emphasis on economic growth, inflation, state budget, balance of payments and external trade. Real GDP growth at factor cost picked up to 3.1 percent in FY 2014/2015 (from 2.2 percent a year earlier). On the supply side, this rise reflects the higher contributions of the sectors of tourism, general government, construction and building, and Suez Canal. On the demand side, GDP growth at market price (4.2 percent) came as a result of the contribution of domestic demand that registered 4.4 percentage points (3.1 point for final consumption and 1.3 point for capital formation), thereby remaining the main driver of growth; whereas external demand recorded a negative 0.2 percentage point (negative 0.1 point for exports and 0.1 point for imports). Implemented investments at current prices totaled LE billion during the reporting year, up by 25.9 percent as compared with the proceeding FY. The decisions made by the Monetary Policy Committee (MPC) in its eight periodic meetings held in FY 2014/2015, were consistent with the inflation developments and inflationary pressure forecasts. In its meeting held on 17 July 2014, the MPC decided to raise the CBE's key interest rates (overnight deposit and lending rates) by 100 bps, to 9.25 percent and percent, in order. The rate of the CBE's main operations (repo or deposit auctions, depending on the prevailing market liquidity conditions), and the discount rate were also raised by 100 bps, to 9.75 percent, each. In its three subsequent meetings, the MPC kept these rates unchanged. However, the Committee, in its fifth meeting on 15 January 2015, decided to cut all rates by 50 bps, each. This decision came in response to the revisions in inflation rate and the Committee's assessment of inflationary pressures. Moreover, upside risks to the inflation outlook continued to be contained on the back of the decrease in international oil prices, and the consequent revision in international food price forecasts. Accordingly, the overnight deposit rate, overnight lending rate, and the rate of the CBE's main operations were cut to 8.75 percent, 9.75 percent, and 9.25 percent, respectively. The discount rate was also cut to 9.25 percent. In its three subsequent meetings, the Committee decided to keep these rates unchanged. The same trend was maintained in the meetings that followed on July 30, September 17 and October 29, 2015 (at the time of preparing this Report). However, on 24 December 2015, the MPC decided to raise all policy rates by 50 bps to address inflationary pressures and anchor inflation expectations.

11 D Regarding the main monetary and credit developments in FY 2014/15, reserve money amounted to LE billion at end of June 2015, with an increase of LE billion or 33.3 percent (against LE 46.5 billion and 14.6 percent in the preceding FY). Domestic liquidity also rose by LE billion or 16.4 percent during the reporting year (compared with LE billion and 17.0 percent a year earlier), reaching LE billion at end of June 2015 (72.7 percent of GDP for FY 2014/2015). The rise in domestic liquidity came in response to the surge in net domestic assets by LE billion or 22.7 percent and the drop in net foreign assets by LE 67.7 billion worth or 56.8 percent. The rise was reflected in the pickup in money supply and quasi money. The former grew by LE 88.5 billion or 21.6 percent, while the latter rose by LE billion or 14.5 percent. Turning to banking developments, the CBE has finished, in agreement with banks, the implementation of Basel II standards, in accordance with the BoD Decision dated 18 December As part of the CBE's efforts to apply the international best practices related to banks' internal controls and to promote the governance concept at the banking system; the BoD approved on 19 August 2014 the regulations of developing internal controls at banks. These regulations were complementary to those actually applied at banks, and in case of any conflict between the two versions, the latter will take precedence. In line with Basel Committee's proposal to introduce a "leverage ratio measure" to supplement the risk-based capital adequacy assessment (in accordance with the timescale for applying Basel III accords), the CBE issued a discussion paper in this regard for banks, attached with the Quantitative Impact Studies (QIS). The regulations pertaining to financial leverage were issued on 14 July In pursuit of its role in developing the banking system and enhancing its soundness and stability, the CBE issued a number of decisions and instructions to banks, as shown in detail in the Report. The financial position of banks operating in Egypt (excluding CBE) increased by LE billion or 21.0 percent in FY 2014/15 (against LE billion and 16.2 percent in the previous FY) reaching LE billion at end of June 2015 (90.5 percent of GDP). On the liabilities side, deposits rose by LE billion or 21.3 percent (versus LE billion or 20.4 percent), to register LE billion, thus constituting more than three quarters of banks' aggregate position (78.9 percent) at end of June On the assets side, nearly 49.9 percent of the increase was ascribed to the surge in banks' investments in treasury bills and securities by LE billion or 23.1 percent (against LE billion and 26.2 percent), to stand at LE billion, representing 46.2 percent of the aggregate financial position of

12 E banks at end of June Additionally, lending and discount balances hiked by LE billion or 22.1 percent (against LE 38.7 billion or 7.1 percent), amounting to LE billion, or 41.4 percent of banks' deposits at end of June As for banks' financial soundness indicators, the capital adequacy ratio, according to Basel II standards, posted 13.5 percent at end of June 2015 (against an established minimum ratio of 10.0 percent). Return on average assets recorded 1.3 percent, return on average equities 18.9 percent, and net interest margin 3.7 percent during FY 2014, against 1.0 percent, 14.5 percent and 3.8 percent, respectively, in FY The ratio of non-performing loans and facilities to total loans and facilities reached 7.6 percent at end of June 2015, against 8.5 percent a year earlier. Loan provisions/non-performing loans inched down to 98.7 percent, from 98.9 percent. The CBE continued its efforts to upgrade the payment systems and information technology. A step forward in this direction was the application of the RTGS system which contributed the most to bolstering the stability of the financial system and reducing credit risks, together with expediting payment settlements and ensuring their credibility and confidentiality. Among the key measures taken in this regard was the preparation to join the COMESA Clearing House (CCH) to enhance trade exchange with the COMESA countries, being crucial for the national security of Egypt. In addition, the project-related agreement with COMESA and the Central Bank of Mauritius was signed. Moreover, the CBE studied the establishment of a developed system for managing the government securities and rendering custodial, depository and guarantee management services in a highly advanced way, with the aim of supporting the infrastructure of financial markets in Egypt. The number of subscribers in the mobile money transfer service exceeded three millions, attesting to the efforts made to enhance financial inclusion by availing simple banking services to the disadvantaged segments. In the context of information technology, the CBE has selected the company entitled to establish a permanent backup site, to be functional in emergencies as a substitute for the main data center at El-Gomhoria building. In addition, the CBE has finished setting the regulations of internet banking. As for the performance of EGX, its benchmark index (EGX 30) increased by 2.6 percent, to stand at points at end of June Conversely, EGX 20 Capped declined by 13.4 percent, to register points; along with EGX 70 and EGX 100 by 24.8 percent and 8.9 percent, in order, to post points and points. Meanwhile, the NILEX index which reflects the performance of small and medium enterprises listed on the Nile Stock Exchange retreated by 14.0 percent to stand at points.

13 F Regarding the forex market, and within the framework of curbing dollar speculations in the parallel market, the CBE has allowed a gradual increase of the US dollar against the Egyptian pound in the periodic FX auctions held for banks as of December Also, the CBE set a maximum limit (daily and monthly) for foreign currency cash deposits. The volume of trade through periodic FX auctions reached US$ 6.6 billion during the FY 2014/15, thus bringing its total volume since the inception of this mechanism till the end of June 2015 to US$ 15.4 billion, with a monthly average of US$ million. In addition, the CBE holds exceptional auctions, as dictated by market needs. Since the introduction of this mechanism till the end of the reporting period, the CBE held five exceptional auctions with a total value of US$ 5.3 billion. The CBE sold a total of US$ 1201 million in the dollar interbank market in the reporting year to meet all pending demands at banks for financing the import of foodstuffs, raw materials and pharmaceuticals. At end of June 2015, the weighted average of the dollar interbank rate amounted to LE (compared with LE at end of June 2014), with a 5.2 percent fall in the value of the Egyptian pound. At end of November 2015 (at the time of preparing this Report) the weighted average of the US dollar exchange rate reached LE , with a further 2.6 percent depreciation of the Egyptian pound, relative to the end of June Net international reserves (NIR) at the CBE mounted by US$ 3.4 billion or 20.3 percent in the reporting year, to stand at US$ 20.1 billion, covering 4.0 months of merchandise imports at end of June However, at the time of preparing this Report, NIR retreated to US$ 16.4 billion at end of November (covering 3.2 months of merchandise imports). Moving to external transactions, the BOP ran an overall surplus of US$ 3.7 billion (against only US$ 1.5 billion a year earlier). The capital and financial account recorded a net inflow of US$ 17.6 billion (against US$ 5.3 billion). Meanwhile, the deficit on the current account widened to US$ 12.2 billion (from US$ 2.7 billion). The widening in the current account deficit was basically due to: (i) an increase in trade deficit by 13.9 percent to US$ 38.8 billion (against US$ 34.1 billion), and (ii) a decline in net unrequited current transfers by 28 percent to just US$ 21.9 billion (against US$ 30.4 billion), mainly ascribable to the fall in net official transfers (cash and commodity) by US$ 2.7 billion (against US$ 11.9 billion). Partially offsetting the rise of the current account deficit was the surplus of US$ 4.7 billion on the balance of services and income (against US$ million a year earlier), principally on account of the rise in tourism revenues by 45.3 percent, to register US$ 7.4 billion.

14 G The rise in the net inflow of the capital and financial account came on account of the increase in the net inflow of foreign direct investment (FDI), to record US$ 6.4 billion (against US$ 4.1 billion). Add to this the increase in the net change of the liabilities of the CBE to the external world, to post a net inflow of US$ 5.5 billion during the year (against US$ 1.9 billion), driven by the increase in deposits from Arab countries. As for public finance, total revenues reached LE billion, while total expenditures amounted to LE billion according to the actual data of the state budget for FY 2014/2015. As a result, the cash deficit registered LE billion. By adding the net acquisition of financial assets (LE 11.3 billion), the overall deficit would reach LE billion (11.5 percent of GDP). Gross domestic public debt reached LE billion at end of June 2015 (87.1 percent of GDP). The debt balance consists of the sum of net government debt, public economic authorities' debt and that of the National Investment Bank (NIB), minus the intra-debt of public economic authorities and the government to NIB. Government debt (domestic and external) increased by 18.3 percent in FY 2014/2015, to reach LE billion at end of June 2015 (85.0 percent of GDP). The outstanding external debt (public and private- all maturities) denominated in US dollar scaled up by 4.3 percent, to reach US$ 48.1 billion at end of June 2015 (against US$ 46.1 billion at end of June 2014). The rise in the debt stock was an outcome of: (1) the pickup in net disbursements of loans & facilities, bonds and deposits, thus driving the debt balance up by US$ 4.5 billion) and (2) the depreciation of most currencies of borrowing versus the US dollar, thereby causing the debt balance to drop by US$ 2.5 billion. The indicators of external debt in Egypt, relative to peer regional country groups, show that Egypt s indicators stay within safe limits, according to IMF classification. Specifically, Egypt s debt as a percentage of GDP (14.9 percent) came among the best levels that ranged from 16.3 percent (for developing Asia) and 68.9 percent (for East and Central Europe). Moreover, by recording 12.7 percent, the indicator of debt service/exports of goods and services was lower than global forecasts for 2015 that ranged between 17.2 percent (for sub-saharan Africa) and 58.6 percent (for East and Central Europe).

15 Chapter 1 : Central Bank of Egypt 1/1 Monetary Policy 1/2 Reserve Money 1/3 Payment Systems and Information Technology (IT) 1/3/1 RTGS and SWIFT Local Services 1/4 Domestic Liquidity and Counterpart Assets 1/5 Supervision Sector 1/6 Management of the Foreign Exchange Market and International Reserves 1/6/1 Foreign Exchange and Dollar Interbank Markets 1/6/2 Management of International Reserves 1/7 Domestic Public Debt and External Debt 1/7/1 Domestic Public Debt 1/7/1/1 Debt of the Government (Net) 1/7/1/2 Net Debt of Public Economic Authorities 1/7/1/3 Net Debt of NIB 1/7/1/4 Intra-debt 1/7/2 External Debt 1/8 Human Resources Development (HRD) 1/8/1 Activity of EBI 1/8/2 CBE Staff Programs

16 1 Chapter 1 Central Bank of Egypt 1/1- Monetary Policy As the ultimate objective of the monetary policy is price stability, the CBE seeks to bring inflation to an appropriate and stable level conductive to building confidence, stimulating investment and achieving the targeted economic growth. The overnight interbank interest rate is considered the operational target of the monetary policy, whereby a framework based on the corridor system is applied, within which the ceiling is the overnight interest rate on lending from the Central Bank, and the floor is the overnight deposit interest rate at the Bank. Hereunder are the monetary policy decisions taken in FY 2014/2015: The decisions taken by the MPC in its eight periodic meetings held in the reporting year were consistent with the inflation developments and the MPC's inflationary pressure forecasts. To elaborate, in its meeting dated 17 July 2014, the Committee decided to raise the overnight deposit and lending rates by 100 bps to reach 9.25 percent and percent, respectively. The CBE's main operation rate (repos or deposits auctions, depending on market liquidity conditions) and the discount rate were also raised by 100 bps to stand at 9.75 percent each. In the following three meetings, the MPC decided to keep the said rates unchanged. In its meeting dated 15 January 2015, the Committee cut all rates by 50 bps, in light of the reassessment of the risks surrounding the inflation outlook, and as upside risks from imported inflation continue to be contained on the back of lower oil prices and the consequent revision in international food price forecasts. Accordingly, the overnight deposit and lending rates reached 8.75 percent and 9.75 percent, in order, and the CBE's main operation rate and the discount rate recorded 9.25 percent each. These rates were kept unchanged in the following three consecutive meetings. The following table shows the developments of the CBE s key interest rates, the 7- day main operation rate and the CBE's discount rate according to the MPC s decisions during the year under review:

17 2 Date Statement Overnight Deposit Rate Overnight Lending Rate Main Operation Rate (7 days) (%) Lending and Discount Rate 29 May July September 2014 Unchanged 16 October 2014 Unchanged 27 November 2014 Unchanged 15 January February 2015 Unchanged 23 April 2015 Unchanged 11 June 2015 Unchanged It is worthy to mention that at the time of preparing this Report, the Committee made no changes to the said rates in its meetings dated 30 July, 17 September, and 29 October First: Interest Rates: The MPC's decisions during FY 2014/2015 affected both the overnight interbank interest rates and the interest rates on LE loans and deposits at banks, as shown hereunder: 1- Overnight Interbank Interest Rates Given the continuous increase in liquidity levels at the banking system, the weighted average of the overnight interbank interest rate moved close to the corridor floor rate, as illustrated in the following chart: % 12 O/N Interbank Rate and Policy Rate Overnight Deposit Rate Overnight Lending Rate Overnight Interbank Rate

18 2- Interest Rates on LE Loans and Deposits The following table shows the developments of the interest rates in June 2015 as compared to June 2014: Weighted Average Interest Rate Annually (%) Month June 2014 June 2015 Deposits More than one month and up to three months More than three months and up to six months More than six months and up to one year Loans* For one year or less * The interest rate on corporate loans after the application of Domestic Money Monitoring System (DMMS). Second: Open Market Operations The fiscal year 2014/2015 witnessed the selling of Suez Canal investment certificates (from 4 to 15 September 2014), to fund the new Suez Canal project. The sale proceeds of the Suez Canal certificates reached LE 64.2 billion, thus causing a retreat in the balance of liquidity absorbed in the period between the end of September and October However, starting from November 2014 till the end of the reporting year, liquidity trended upwards again, mainly due to the higher government spending on different activities. Hereunder are the developments of the average excess liquidity absorbed by the CBE through the 7-day deposit acceptance operations, and of the overnight deposit operations during this year: Date Statement Average Excess Liquidity in Local Currency Absorbed from the Banking System Average Overnight Deposit Operations Average 7-day Deposit Acceptance Operations 3 (LE bn) Average Excess Liquidity June July August September October November December January February March April May June

19 4 1/2- Reserve Money Reserve money reached LE billion at end of June 2015, up by LE billion or 33.3 percent during FY 2014/2015 (against LE 46.5 billion or 14.6 percent a year earlier). The increase in reserve money resulted in a growth in currency in circulation outside the CBE and in banks' local currency deposits therewith. Reserve Money and Counterpart Assets* (LE mn) Change During the FY + (-) Balances at End of 2013/ /2015 June 2015 Value Value A- Reserve Money Currency in circulation outside CBE Banks' local currency deposits at CBE B- Counterpart Assets Net Foreign Assets (840) (12117) Foreign Assets Foreign Liabilities Net Domestic Assets Net Claims on Government Net Claims on Banks (3234) (17289) Net Balancing Items (68809) * Derived from the CBE s balance sheet. The currency in circulation outside the CBE (the first component of reserve money) increased by LE 24.8 billion or 8.6 percent in the reporting year (against LE 27.8 billion or 10.7 percent a year earlier), bringing its balance to LE billion at end of June This increase came on the back of the pickup in issued banknote (excluding subsidiary coins) by LE 25.0 billion or 8.6 percent, to stand at LE billion at end of June Components of the note issue cover at end of June 2015 ran as follows: Egyptian government bonds made up LE billion or 53.0 percent, foreign notes LE 96.6 billion worth or 30.7 percent, foreign currencies LE 33.2 billion worth or 10.5 percent, and gold LE 18.2 billion worth or 5.8 percent. Banknote Issue* (LE mn) At End of June Balance of Banknote Change during the Year Issue Value % * Including subsidiary coins issued by the Ministry of Finance.

20 5 The breakdown of the currency in circulation outside the CBE showed a continued rise in the relative importance of the LE 200 note, reaching 49.5 percent at end of June 2015 (against 46.6 percent at the end of June 2014). Likewise, the relative importance of the LE 50 note also increased to 9.7 percent (from 8.7 percent). Meanwhile, other denominations declined or remained stable. Currency in Circulation By Denomination* (LE mn) June 2014 June 2015 Change During FY + (-) Denominations Relative Relative Value Importance Value Importance 2013/ /2015 Total Banknote in Circulation PT PT LE LE (4.1) 2.3 LE LE (0.5) LE LE (1.2) LE Subsidiary Coins * Representing the difference between banknote issue and cash at the CBE. Banks local currency deposits at the CBE (the second component of reserve money) increased by LE 96.6 billion or percent during the year (against LE 18.7 billion or 32.8 percent in the year of comparison), to stand at LE billion at end of June This noticeable increase was due to the fact that the deposits accepted at the CBE reached maturity on the 30 th of June 2015 and that the renewal session scheduled for such deposits was cancelled; as the day happened to be a public holiday. Accordingly, these deposits were held in the current accounts of banks at the CBE and a substitute session was held on Thursday 2/7/2015. The pickup in reserve money in the reporting year was attributed to the increase in net domestic assets, on the one hand, and the retreat in net foreign assets, on the other. The former made a positive contribution of 36.6 percentage points, and the latter made a negative contribution of 3.3 percentage points.

21 6 1- Net Domestic Assets Net domestic assets surged by LE billion during the reporting year (against LE 47.3 billion), to stand at LE billion at end of June The surge was a result of the following developments: Net Claims on the Government The CBE s net claims on the government augmented by LE billion or 25.0 percent (against LE billion or 39.8 percent a year earlier), to register LE billion at end of June Such a rise was a result of the higher claims on the government by LE billion, and the higher government deposits at the CBE by LE 51.6 billion. Net Balancing Items The net balancing items had an expansionary effect on reserve money, as their negative balance retreated by LE 46.1 billion, due to the decline in the total balance of deposits accepted at the CBE under the open market operations (LE 44.3 billion), as previously indicated, and the retreat in the negative balance of unclassified assets and liabilities (net) by LE 1.8 billion. Net Claims on Banks The CBE s net claims on banks had a contractionary effect of LE 17.3 billion on reserve money in FY 2014/2015. This was owed to the increase in banks' foreign currency deposits at the CBE by LE 17.0 billion worth, and the retreat in Central Bank's claims on banks by LE 0.3 billion. 2- Net Foreign Assets Net foreign assets at the CBE rolled back by LE 12.1 billion worth or 32.4 percent, against a retreat of LE 0.8 billion worth or 2.2 percent, posting LE 25.3 billion worth at end of June The decline was a combined result of the increase in both: (i) foreign liabilities at the CBE by LE 44.4 billion worth or 56.7 percent during the year (against a rise of LE 14.9 billion worth or 23.5 percent a year earlier), to reach LE billion worth at end of June 2015; and (ii) foreign assets at the CBE by the equivalent of LE 32.3 billion or 27.9 percent during the year (against a pickup of LE 14.1 billion worth or 13.9 percent a year earlier), to register LE billion worth at end of June The said developments were attributed to grants and deposits placed at the CBE by some Arab countries and the reimbursement of deposits to an Arab country.

22 7 1/3 - Payment Systems and Information Technology (IT) The CBE continued its efforts to upgrade the payment systems and information technology to boost the soundness and stability of the financial system and reduce credit risks, along with expediting payment settlements and ensuring their creditability and confidentiality, through the continued application of the RTGS system. Among the measures taken in this regard were the following: Payment Systems The CBE is considering the establishment of a developed system for managing government securities, and rendering custodial, depository and guarantee management services in a highly advanced way, with the aim of supporting the infrastructure of financial markets in Egypt. A bid was made to recruit a technical advisor and working started therewith. This project is being funded by the European Bank for Reconstruction and Development (EBRD). The CBE is currently gearing to join the Regional Payment and Settlement System (REPSS) run by the COMESA Clearing House. This system aims at enhancing trade exchange with the COMESA countries, being crucial for the national security of Egypt. At present, the required technical systems are being prepared and the relevant CBE's internal rules and procedures are being examined. In addition, relevant agreement has been signed with the COMESA Clearing House and the Central Bank of Mauritius. The CBE is working on enhancing financial inclusion by increasing simple banking services for the underprivileged. An example of these services is the mobile money transfer service, with users exceeding 3 million persons. The CBE aims at widening access to this service for all society segments especially the underprivileged. In this context, a study is being prepared regarding a new project to promote financial inclusion in Egypt that will be financed by the European Investment Bank. The project agreement will be shortly signed. Information Technology The CBE has selected the company that will establish the permanent Disaster Recovery (DR) site for the CBE, to be functional in emergencies as a substitute for the main data center in El-Gomhoreya Building. This is intended to guarantee the continuity of the service. This company was selected via a restricted bid among specialized companies. The plot of land has been already delivered to the company, and the project is currently under construction according to the set plan.

23 8 A new CBE's website has been already designed and piloted on the CBE's internal network. The final procedures are being conducted for the actual operation of the website. The CBE finalized setting the regulations of internet banking. In this regard, a workshop was held with banks in preparation for circulating these regulations. E-banking regulations have been already put into force during the year under review. For the purposes of updating, banks which have been already providing internet banking services are currently submitting corrective action plans. All electronic systems at the Printing Press were upgraded and started operation. The accounting system of the CBE CAS started operation in the branches of Alexandria, Port Said and El- Mohandeseen. Also, the electronic system of the medical care for the CBE employees was applied. Last but not least, the branches' internal accounts will be operated through the accounting system. A gap analysis of the IT Infrastructure of archives and microfilm was completed. Accordingly, the work methods were modernized and a new work procedures manual was approved. Moreover, a scientific reference for archiving and microfilming (including reviewing quality requirements and retention periods for paper and microfilm documents) is under approval. The archive and microfilming system is currently being developed through a digital to microfilm conversion project. A digital archive will be maintained for internal retrieval. In addition, the paper archive platforms will be developed, and an alternative microfilms library will be established at the Archives of the Printing Press. The Central Depository for Government Securities is under development, funded by the European Bank for Reconstruction and Development (EBRD). The project covers the following areas: the yield curve pricing model, trading platform, the collateral management system, repo auctions, a clearing system for the secondary market, settlement of government securities, and a database for government securities data (including data of Misr for Central Clearing) to guarantee the availability, storage and recovery of liquidity.

24 9 1/3/1- RTGS and SWIFT Local Services Local bank transfers in Egyptian pound under the RTGS showed a decrease in the number of executed messages to thousand in FY 2014/2015 (from thousand a year earlier). Their value, however, increased to LE billion (from LE billion). Notably, such transactions included transfers of banks and clients and transactions of treasury bills, Misr for Central Clearing, Depository and Registry (MCDR), and the National Debit Switch, in addition to corridor operations and deposits for monetary policy purposes. FY Number of Messages (Unit) RTGS and SWIFT Local Services (in Local Currency) Value of Transfers (LE mn) Change during the Year + (-) Number Value 2011/ ( ) 2012/ (68566) / (195648) / (13491) According to the statistics of the CBE Automated Clearing House that applies the RTGS system, the number of exchanged papers increased to thousand (from12886 thousand) along with their value to LE billion (from LE billion). As a result, the average value per paper moved up to LE 71.8 thousand (from LE 61.2 thousand). CBE Automated Clearing House Activity FY Number of Papers Value of Papers Change Rate + (-) (Thousand) (LE mn) Number Value 2011/ (1.4) / / (2.9) / Transactions executed in foreign currencies under the Fin-Copy system, via SWIFT, revealed an increase in their number and a decrease in their value. Specifically, their number amounted to 5.5 thousand, at a value of US$ 7.6 billion, against 4.8 thousand, at a value of US$ 8.5 billion a year earlier.

25 10 SWIFT Local Services (in US Dollar) FY Number of Messages Value of Transfers Change during the Year + (-) (Unit) (US$ mn) Number Value 2011/ (986) (25731) 2012/ (4195) (27798) 2013/ (5043) (26055) 2014/ (871) 1/4- Domestic Liquidity and Counterpart Assets In FY 2014/2015, domestic liquidity grew by LE billion or 16.4 percent, against LE billion and 17.0 percent a year earlier. This brought total domestic liquidity to LE billion at end of June. Such a rise was a dual effect of the increase in net domestic assets and the drop in net foreign assets. The former made a positive contribution of 20.9 percentage points to domestic liquidity growth, while the latter made a negative contribution of 4.5 points. The pickup in domestic liquidity during the reporting year reflected the growth in its two components, i.e., money supply and quasi-money. Money supply (current means of payment) scaled up by LE 88.5 billion or 21.6 percent (against LE 66.4 billion and 19.3 percent in the year of comparison), reaching LE billion (28.3 percent of total domestic liquidity) at end of June The rise in money supply was attributable to the rise in both currency in circulation outside the banking system and local currency demand deposits. The former picked up by LE 21.8 billion or 8.1 percent (against LE 29.8 billion and 12.4 percent), scoring LE billion at end of June (%) Domestic Liquidity Growth by Components (during FY) Net Domestic assets Net Foreign Assets Domestic Liquidity Growth (2.0) (7.0) (12.0) 2011/ / / /2015

26 11 In parallel, local currency demand deposits increased by LE 66.7 billion or 47.7 percent during the reporting year (against LE 36.6 billion or 35.5 percent in the previous FY), ending the year at LE billion. This noticeable rise reflected mainly the increase in the deposits of the private business sector by LE 47.6 billion, of the household sector by LE 11.6 billion, and of the public business sector by LE 7.5 billion. Quasi-money (time and saving deposits in local currency plus demand and time and saving deposits in foreign currencies) augmented by LE billion or 14.5 percent in the reporting year (against LE billion and 16.2 percent a year earlier), to post LE billion or 71.7 percent of total domestic liquidity at end of June The rise reflected the growth in both LE time and saving deposits and foreign currency deposits. LE time and saving deposits surged by LE billion or 15.3 percent (against LE billion and 19.5 percent), to LE billion or 79.2 percent of total quasi-money at end of June The increase resulted from the surge in the deposits of the household sector by LE 98.6 billion, of the private business sector by LE 30.8 billion, and of the public business sector by LE 4.1 billion. Foreign currency deposits (demand and time & saving) went up by LE 26.9 billion worth or 11.4 percent (against LE 11.9 billion worth and 5.3 percent), posting LE billion worth and constituting 20.8 percent of total quasi-money. All sectors contributed to the said rise: the deposits of the household grew by LE 21.5 billion worth, of the private business sector by LE 4.1 billion worth and of the public business sector by LE 1.3 billion worth. Against these developments, the ratio of foreign currency deposits/total deposits (dollarization rate) retreated to 17.9 percent at end of June 2015 from 19.0 percent at end of June Domestic Liquidity Components End of June 2015 Currency in circulation outside the banking system 16.6% Quasi-Money 71.7% Money Supply 28.3% Demand deposits in local currency 11.7%

27 12 Net domestic assets recorded a rise of LE billion or 22.7 percent, against LE billion or 19.1 percent, to stand at LE billion at end of June The rise in net domestic assets reflected the pickup in domestic credit extended by banks during the year by LE billion or 21.7 percent (against LE billion and 21.0 percent), to LE billion at end of June That rise was mitigated by the contractionary effect of net balancing items. Change in Domestic Credit Value 2013/ /2015 Growth Rate % Value Growth Rate % During FY Net claims on the government and public economic authorities Claims on public business sector * Claims on private business sector Claims on household sector Total change * Including public companies that are subject or not to Law No. 203 for the year The increase in domestic credit came mainly from the surge in net credit to the government by LE billion or 23.6 percent (against LE billion or 30.2 percent), to LE billion or 65.3 percent of total credit at end of June Such an increase reflected the rise in banks' holdings of government securities by LE billion, in loans to the government by LE billion, and in government deposits by LE billion. Credit to the private business sector stepped up by LE 59.0 billion or 15.2 percent (against LE 19.5 billion and 5.3 percent), to LE billion or 22.6 percent of total credit at end of June Likewise, credit to the household sector scaled up by LE 30.0 billion or 20.7 percent (against LE 17.3 billion and 13.6 percent), raising its debts to LE billion. Credit to the public business sector climbed by LE 17.8 billion or 39.2 percent (against LE 2.6 billion and 6.0 percent), to LE 63.2 billion. Net balancing items (the sum of capital accounts, interbank net credit and debit positions and those between banks and the CBE, and net unclassified assets and liabilities) had a contractionary effect of about LE 36.5 billion on domestic liquidity. This was due partly to the increase of capital accounts by LE 29.7 billion and partly to the decline in net unclassified assets and liabilities by LE 4.3 billion and interbank credit and debit positions and those between banks and the CBE (net) by LE 2.5 billion.

28 13 Net foreign assets at the banking system (expressed in Egyptian pound) declined by LE 67.7 billion or 56.8 percent (compared to a decline of LE 4.0 billion and 3.3 percent), to LE 51.5 billion at end of June The retreat came on the back of the decrease in net foreign assets at banks by LE 55.6 billion or 67.9 percent, and at the CBE by LE 12.1 billion or 32.4 percent. LE bn Foreign Assets & Liabilities of the Banking System at End of June Foreign Assets Foreign Liabilities

29 14 1/5- Supervision Sector The CBE conducts supervision over banks operating in Egypt to ensure their sound financial positions and evaluate their performance from the perspective of risk based supervision. In addition, it ascertains banks compliance with the established regulatory standards, including the minimum reserve requirement and liquidity ratios, the maximum limits of a bank s concentration of investments with a single customer, along with his related parties, and investments abroad, as well as the asset-liability matching in terms of maturity and currency. This is in addition to a number of qualitative standards that ensure alongside the above the soundness of banks performance and the safety of depositors funds. Among these standards are governance rules; information systems efficiency rules; and eligibility and competency criteria for officials and managers of key sectors at banks. The implications of the recent crises bore out that the regulations and reform policies of the so-called "the Banking Sector Reform Program" adopted by the CBE to restructure banks, raise their capital and strengthen their risk management systems proved highly instrumental in containing the effects of these crises, alongside with maintaining the integrity of the banking sector and enhancing its ability to handle the headwinds of adverse events, notwithstanding the drain of cash reserves. It is worth mentioning that the Banking Sector Reform Program was fruitful mainly as regards Basel II implementation as the CBE's BoD has approved in its session dated December 18, 2012 the instructions of the minimum capital adequacy requirement. The following points have been taken into account: - Banks operating in Egypt excluding branches of foreign banks are required to maintain a minimum adequacy ratio of 10 percent of the capital base (numerator) and the risk-weighted assets (denominator) to cover credit, market and operational risks. Except for maintaining the aforementioned ratio, branches of foreign banks are subject to the regulations stated in the regulatory instructions. - Banks operating in Egypt are required to apply the regulations contained in these instructions. For banks with fiscal year ending in December, these regulations shall be binding as of December 2012 and for banks with fiscal year ending in June, they shall be binding as of June In addition, a transition period of six months was determined within which banks submitted their data according to the regulations issued earlier concerning capital adequacy, in parallel with the new regulations, to ensure the soundness of the systems and consequently the accuracy of data.

30 15 - The CBE made progress with its efforts to develop internal controls and firmly establish the concept of governance at the banking system, taking into consideration the type and volume of risks related to banking operations and the importance of applying prudential measures that are not confined to internal audit, but also include a comprehensive internal control system subject to periodic development and assessment. Within this context, the CBE's BoD decided in its session dated 19 th of August 2014, to approve the regulations governing internal controls, in accordance with the Law of the Central Bank, the Banking Sector and Money promulgated by Law No. 88 of 2003, its Executive Regulations and its amendments, with the aim of enhancing internal controls at Egyptian banks. These regulations and those issued by the CBE on the 23 rd of August, 2011 regarding bank governance are to be considered complementary to each other. In line with Basel Committee's proposal to introduce a ''leverage ratio measure'' to supplement the risk-based capital adequacy assessment ((in line with the timescale for applying Basel III accords), the CBE issued a discussion paper in this regard for banks, attached with the Quantitative Impact Studies (QIS) form in Q3 of FY 2014/2015. Banks, in turn, completed data forms and sent them to the CBE in the last quarter of the said year. The QIS results were analyzed and taken into account to pave the way for the issuance of related regulations. The regulations for the leverage ratio were issued on the 14 th of July, 2015). Out of its keenness to upgrade the Supervision Sector in line with international standards, and the recommendations issued by Basel Committee on Banking Supervision, the CBE amended the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) in the discussion paper on liquidity risks that has been sent to banks in the second half of FY 2010/2011, attached with a QIS, in order to lay the foundations for related supervisory instructions after completing the required data analysis. Meanwhile, the regulations for the second pillar of Basel's requirements (concentration, liquidity, and interest rate risks in banking portfolio), will be issued after ensuring that the market has fully digested the recent regulations of the first pillar (the minimum capital adequacy standard), as well as the new regulations governing internal controls and leverage ratio.

31 16 Hereunder are the main instructions issued by the CBE to all banks during the year under review: Raising the value of the housing units to be financed under the mortgage finance initiative to middle income bracket from LE 300 thousand per unit to LE 400 thousand and then to LE 500 thousand per unit. Issuing an agreement contract regulating the process of issuing the New Suez Canal Investment Certificates between the four public banks, namely the National Bank of Egypt, Banque Misr, Banque du Caire, and the Suez Canal Bank entrusted by the Suez Canal Authority to issue those Certificates, on the one hand, and other non-issuing banks, on the other. Setting the regulations of personal loans for sporting club subscriptions, provided that the club owner company is under the obligation to pay off the loan balance in case customers default on payment. Reiterating that the effective interest rates per annum on banking products offered to customers (deposits, loans, ) should be stated in contracts, applied, and announced. In case of entering into a hire purchase contract with some parties, the contract must include a clause determining, applying, and announcing the effective interest rates and their disclosure as aforementioned. It is prohibited to contract, apply, or announce flat rates by either the bank or the supplier of goods and services. Confirming the prohibition of using foreign currencies in local real estate dispositions (selling and buying of lands and buildings). Issuing regulations for the development of internal controls at banks as a minimum. Banks shall be granted a grace period of six months to adjust their conditions in accordance with these regulations. On the other hand, banks are required to present a precise progress schedule in this regard during the said period to the Supervision Sector. Banks interested in receiving subscriptions on behalf of some parties shall apply to the CBE to obtain a prior approval on a case-by-case basis. Exempting some Egyptian diplomatic missions abroad from the maximum daily limit of withdrawal (US$ 30 thousand) or their equivalent in any other foreign currency.

32 17 Requesting banks to pay due diligence to counting and sorting operations of local banknotes and the importance of making banks get acquainted quickly with the available state-of-the-art devices and methods for counting and sorting banknotes and setting a scheduled program for application. Setting the rules regulating the provision of Internet Banking Services in the Egyptian banking sector. Amending the regulations regarding banks' monetary and fixed income funds. Extending exemption from the minimum cash cover limit (50 percent) for all meat, poultry and sugar imports, as well as for medicines, vaccines, and related chemicals; infant formula; foodstuffs (wheat, oils and seeds); fodder (maize, soya beans and others); and fertilizers and insecticides for additional periods, ending at the end of December Extending the Support Tourism Initiative for a period of six months ending the end of June 2015, followed by a period of one year ending the end of June Instructions regarding the stability of the FOREX market and eradication of the parallel market. Imposing a limit on US dollar cash deposits not exceeding US$ 10 thousand per day and US$ 50 thousand per month. Complying with foreign currency priorities. The compliance officer will be responsible for ensuring the proper implementation of priorities. Prohibiting the introduction of currency speculation products, including transferable deposits. No temporary foreign currency facilities will be offered to clients unless documents of import operations have been submitted. Monitoring clients' local transfers in foreign currencies. Allowing banks to accept cash deposits in foreign currencies from companies that deal with importers from certain countries (Libya, Syria, Sudan, Palestine, Iraq, and Yemen), even if such cash deposits exceed the specified threshold, provided that the value of these deposits commensurate with the volume and nature of the customer's regular business, along with the value of the documents of the export operation. Requesting data on the amounts of foreign currencies sold by clients as well as executed and non-executed clients' requests for foreign currency within a week.

33 18 Obliging banks to present annual reports to the Central Bank about the stress testing of their credit portfolios (corporate and retail) starting as of the fiscal year ending In order to print Form 4 with security features to minimize forgery and tightly control importing operations, the CBE requires detailed data from banks (the bank slogan, its full name, its brief name, and the number of required forms). The detailed report prepared by the two auditors about a bank's audited financial statements in accordance with Law No. 88 of the Year 2003 promulgating the Law of the Central Bank, the Banking Sector and Money for the fiscal year ending in or before December 2014, should be accompanied by opinion about the methodology used for calculating impairment loss provision on loans and facilities. This must be taken into consideration in the following years if any amendment is made to this methodology and, if not, a reference to this fact in the detailed report would be sufficient. Amending the regulations governing the term of service of bank auditors as of financial statements audit for Banks are required to explain the reasons of approval or rejection of transactions to clients if such reasons are related to internal work systems of the bank. The Central Bank should not get involved in this issue. The CBE launched an initiative to support the industrial sector. The initiative is directed to non-performing customers. During the time of preparing this Report, the following decisions were issued: Opening accounts in all banks' branches to receive deposits and donations from citizens and public figures to participate in the opening of the New Suez Canal. Any company that owns more than 50 percent of another company may sell the latter foreign currencies if foreign currency receipts are available provided that this foreign currency is to be used to settle outstanding obligations of import operations. Banks are obliged to meet the Basel III leverage ratio of 3 percent - on a quarterly basis first as an indicative ratio from the end of September 2015 till 2017, then as a mandatory ratio as of 2018.

34 19 Within the framework of expanding banks' activity and extending banking services to more clients, the CBE's BoD approved in its session dated 2 December 2014 the regulations governing the establishment of mini branches/agencies for banks. The activities of these branches (agencies) shall be confined to deposit and withdrawal operations, currency exchange in cash by individuals, operations executed through ATMs, as well as all retail banking operations. This is besides receiving applications for various banking transactions and forwarding them to competent departments in the bank for completing their procedures and receiving hire purchase applications in agreement with distributors. The said branches shall also be responsible for the sales and marketing of banks' products. Last but not least, they will provide banking services for the small and medium enterprises sector. Banks are required to allocate LE 5 million of their core capital to every new mini branch/agency inside Greater Cairo and LE 2 million outside Greater Cairo, except for Upper Egypt governorates (LE 1 million). During the reporting year, 71 BoD members, 3 representatives of representation offices and 31 managing directors were added to the register of banks pursuant to Article 43 of Law no. 88 of 2003 of the Central Bank, the Banking Sector and Money, and in compliance with the applicable fit and proper criteria. Under Article 32/3 of the said Law which states that the Governor of the Central Bank, following consent of the Board of Directors, shall approve the statute of the bank, and any modification thereto, certain articles of the statutes of 11 banks were modified during the year under review. Moreover, 89 new branches of 23 banks were added to the register of banks in accordance with the regulations set by the CBE. These regulations give due regard to the soundness of banks' financial positions, internal controls, the efficiency of their information systems, and capital adequacy to ensure that banks can better face the risks arising from the expansion in their activities. In light of the rules regulating the electronic payment services, 15 banks were licensed to offer 44 e-banking services. To organize dealing in the Forex market in Egypt, Forex dealers and any other entities licensed to deal in foreign exchange are subjected to off-site supervision, according to the Law of the Central Bank, the Banking Sector and Money. In this respect, it is worthy to note that during the reporting year, a new exchange dealer company was established. Moreover, 14 branches of existing Forex dealers were registered and 10 branches were delisted, thus bringing the total number of forex dealers to 533 nationwide.

35 20 Moving to tourism services, the CBE pursuant to the aforesaid Law- had already licensed shops in the customs posts at airports to sell in foreign currencies, alongside the Egyptian pound, with the aim of covering part of the country's needs of foreign currencies and encouraging tourism. Two shops were licensed during the year, bringing, as such, the total number of licensed shops to 84 at the end of June Also, the number of licensed shops in the free zones increased by 2, reaching 31 shops at the end of the same year. Concerning on-site supervision, the Supervision Sector at the CBE continued assuming its role in exercising supervision over banks, guided by the set plan that included the year under review. Specifically, the following points were observed: Making sure that the inspected bank complies with the instructions stated in the Banks Law and its Executive Regulations as well as the instructions issued by the CBE. Identifying the different kinds of risks to which the inspected bank is vulnerable and performing quantitative and qualitative risk analysis to assess the risk level, then take the appropriate measures to minimize them and set corrective plans for their avoidance; and making sure that the inspected bank secures enough provisions against non-performing loans, in order to guarantee the safety of depositors' and shareholders' funds. Ensuring the soundness of banks' financial positions and verifying that the financial data therein are identical to those in banks' records. Ensuring the soundness of the internal controls at banks and compliance with the principles of good governance. Examining some of the issues related to money laundering and submitting the results to the Anti-Money Laundering Unit. Verifying the compliance of the banking sector with the supervisory regulations related to banking transfers in foreign currencies, as well as monitoring internal and external transfers in foreign currencies of some banks to examine the purpose of these transfers and make sure they are within the set limits, and verifying the compliance with foreign currency cash deposit and withdrawal limits. Also, the Supervision Sector ensures that banks are implementing the required measures and procedures for rationalizing the use of foreign currency to preserve the country's resources of foreign currencies.

36 21 Monitoring banks' compliance with Basel II requirements (minimum capital adequacy ratio that covers credit, operational and market risks). Ensuring banks' compliance with the rules regulating e-banking services, and that the technology systems used at banks, including system upgrades, are adequately secured. Following up the compliance of banks with corrective action plans, examining risk exposures and assessing banks' performance, as well as evaluating the risk profiles of large customers at the banking system.

37 22 1/6- Management of the Foreign Exchange Market and International Reserves 1/6/1- Foreign Exchange and Dollar Interbank Markets Performance and Development of the Foreign Exchange Market Within the framework of eliminating the parallel market and curbing the US dollar speculations, the CBE allowed the US dollar exchange rate to gradually appreciate vis-à-vis the Egyptian pound at periodic FX auctions that has been introduced to banks as of December Moreover, the CBE set a maximum limit (daily and monthly) for foreign currency cash deposits. The volume of trade through periodic FX Auctions reached US$ 6.6 billion in FY 2014/2015, bringing as such their total volume since the inception of this mechanism till the end of June 2015 to some US$ 15.4 billion, with a monthly average of US$ million. In addition, the CBE holds exceptional auctions as dictated by market needs. Since the inception of this mechanism till the end of the reporting year, the CBE held 5 exceptional FX auctions with a total value of US$ 5.3 billion. It is worth mentioning that the CBE sold US$ 420 million in the interbank market on 1 st March 2015; followed by US$ 281 million on 5 April; then US$ 500 million on 4 May, to meet all pending demands at banks for financing the import of foodstuffs, raw materials and pharmaceuticals. Thus, the total value of the amounts sold by the CBE in the interbank market in the reporting year reached US$ 1201 million. At end of June 2015, the weighted average of the dollar interbank rate reached LE (against LE at end of June 2014) with a 5.2 percent fall in the value of the Egyptian pound in the reporting year. At end of October 2015 (at the time of preparing this Report), the weighted average of the US dollar exchange rate reached LE , with a 5.0 percent drop in the value of the Egyptian pound during July/October 2015.

38 23 US mn FX Auctions LE Fx Auctions Exceptional FX Auctions Weight Average of Exchange Rates 1/6/2 Management of International Reserves NIRs at the CBE increased by some US$ 3.4 billion or 20.3 percent during the reporting year, to register US$ 20.1 billion at end of June 2015, thus covering 4.0 months of merchandise imports. At the time of preparing this Report, NIRs retreated to US$ 16.4 billion, to cover 3.2 months of merchandise imports at end of November (US$ bn) Net International Reserves & Months of Merchandise Imports At End of June Months NIR NIR/Months of Merchandise Imports

39 24 1/7- Domestic Public Debt and External Debt 1/7/1- Domestic Public Debt At end of June 2015, domestic public debt amounted to LE billion or 87.1 percent of GDP (against LE billion or 86.4 percent of GDP at end of June 2014), with an increase of LE billion or 16.5 percent during FY 2014/2015 Gross Domestic Debt at End of June 2015 (LE bn) Gross Domestic Debt Intra-Debt NIB Debt (Net) Net debt of Economic Authorities 11.1 Net Domestic Debt of Government /7/1/1-Debt of the Government (Net) Net government domestic debt expanded by LE billion or 21.6 percent during FY 2014/2015 to LE billion or 77.0 percent of GDP at the end of June The rise was driven by the LE billion increase in the balances of treasury bonds and bills and the LE billion rise in the government balances at the banking system (due to the increase in both government loans by LE billion and government deposits by LE 57.4 billion). Meanwhile, borrowing from other local entities retreated by LE 10.1 billion and facilities from SIFs by LE 0.7 billion. * Domestic public debt includes net debt of the government, net debt of public economic authorities, and that of the National Investment Bank (NIB), minus the intra-debt of both public economic authorities and the government to the NIB.

40 25 Domestic Debt of the Government (Net) (LE bn) June 2014 June 2015 Change Balances at End of (+) - Value % Value % 2014/2015 Domestic Government Debt (Net) Balances of Bonds & Bills Bonds, of which, Tradable on exchanges Treasury bills Facilities from SIFs (0.7) - Borrowing from Other Entities (10.1) - Masri Dollar Certificates Net Balances at the Banking System Credit facilities Deposits (-) Net Domestic Government Debt/GDP (%) Source: Table 3/1 in the Statistical Annex. Ratios are calculated in terms of LE million. The increase of LE billion in the balances of government bonds and bills was an outcome of the following developments: A- The rise in the balance of government bonds by LE billion, to LE billion at the end of June 2015, mainly as a result of: 1- The LE billion increase in the Egyptian treasury bonds in the reporting year, represented in new issuances and increases at a value of LE billion, in addition to the redemption of some tranches in the amount of LE 78.7 billion. 2- The rise in the balance of SIF bonds by LE 20.8 billion, due to issuing new bonds on 1/7/2014 (representing part of the SIF claims on the Ministry of Finance). 3- The increase in treasury bonds in US dollar at a value of US$ 1.2 billion worth for the benefit of commercial banks. 4- The retreat in the balance of dollar-denominated bonds floated abroad, housing bonds, and issued bonds for Barwa Real Estate Company Q.S.C by LE 0.7 billion. B- The rise in the balance of public treasury bills by LE 61.5 billion, to LE billion at end June 2015, on the back of the increase in those issued in Egyptian pound by LE 60.0 billion and in US dollar by the equivalent of LE 2.1 billion, and the decline in those issued in euro by the equivalent of LE 0.6 billion.

41 26 LE bn % Net Domestic Debt of Government 73.2% 77.0% June 2013 June 2014 June 2015 Treasury Bills Bonds & other Credit Facilities Net Government Balances with the Banking System Ratio of Government Debt /GDP % Net Domestic Debt of the Government /GDP 1/7/1/2- Net Debt of Public Economic Authorities During FY 2014/2015, net debt of public economic authorities went down by LE 47.3 billion to LE 11.1 billion at end of June The fall was traceable to the decrease in their net borrowing from the banking system by LE 47.9 billion (because of the rise in their claims on the banking system by LE 20.0 billion and in their deposits therewith by LE 67.9 billion), in addition to the slight rise in their borrowing from the NIB by LE 0.6 billion. 1/7/1/3- Net Debt of NIB Net debt of NIB (including intra-debt) mounted to some LE billion at end of June 2015, up by LE 13.0 billion in the reporting year. The rise was an outcome of the pickup in total resources invested at the NIB by LE 12.7 billion to LE billion, on the one hand, and the retreat in its deposits at the banking system by LE 0.3 billion, on the other. Resources of the NIB at End of June 2015 Uses of the NIB at End of June 2015 Dollar Development Bonds &Others 0.6% Social Insurance Funds 25.2% Investment in Treasury Bills & Bonds 2.5% Deposits with the Banking System 0.5% Post Office Saving Account 34.6% Loans to Economic Authorities 17.8% Proceeds of Investment Certificates & Accumulated Interest 39.6% Loans to Holding Companies & Affiliate Units, Concessional Lending & Others 79.2% * Most of the increase represents the proceeds of selling the New Suez Canal Certificates.

42 27 1/7/1/4- Intra-Debt Intra-debt of public economic authorities and the government to the NIB reached some LE 60.0 billion at end of June 2015, against LE 61.2 billion at end of June Loans extended by the NIB to these authorities registered about LE 52.6 billion, with an increase of LE 0.6 billion in the reporting year. On the other hand, NIB's investments in government securities (bills and bonds) recorded LE 7.4 billion, down by LE 1.8 billion.

43 28 1/7/2 External Debt Outstanding external debt (public and private - all maturities) increased by 4.3 percent to about US$ 48.1 billion at end of June 2015, compared with US$ 46.1 billion at end of June The increase was traceable to net disbursements of loans, facilities and bonds, thereby causing the debt balance to rise by US$ 4.5 billion. Add to this the depreciation of most currencies of borrowing versus the US dollar, thus leading to the decline in the debt balance by US$ 2.5 billion. Below is a detailed review of external debt by: 1- Debt Structure 2- Debtor 3- Main currency 4- Main creditor 1- Debt Structure The data of external debt by original maturity indicate that medium- and long-term debt (guaranteed and non-guaranteed) registered US$ 45.5 billion, accounting for 94.6 percent of total external debt at end of June In figures, long-term debt made up US$ 31.5 billion, while medium-term debt constituted US$ 14.0 billion, mostly bonds issued abroad. In the meantime, short-term debt represented US$ 2.6 billion or 5.4 percent of total debt. Long Term Deposits 31.2% External Debt Structure End of June 2015 Private sector (Non guaranteed) 0.1% Short term debt 5.4% Rescheduled bilateral debt 12.9% Other bilateral debt 11.4% Egyptian bonds and notes 10.3% Suppliers' & buyers' Credits 3.2% International & regional organizations 25.5%

44 29 Hereunder is a breakdown of external debt structure at end of June 2015: Long-term loans owed to Paris Club members * registered US$ 10.0 billion at end of June 2015 (20.7 percent of total debt). Meanwhile, debt to countries other than Paris Club members recorded US$ 3.3 billion (6.8 percent of total debt). Debt to international and regional organizations posted US$ 12.2 billion (25.5 percent of total debt). The balance of Egyptian bonds and notes abroad (held by non-residents) reached US$ 4.9 billion (10.3 percent of total external debt). It consists of the following: Guaranteed government bonds issued in September 2005, at a value of US$ 1250 million, and falling due in September Sovereign bonds issued abroad in April 2010, at a value of US$ million, and falling due over two tranches by 2020 and Government bonds ** issued abroad in June 2012, at a value of US$ 500 million, and falling due in June Euro medium-term notes (EMTN), at a value of US$ 1.0 billion, issued in May 2013 and falling due in July Global medium-term notes (GMTN), at a value of US$ 1.4 billion, and falling due in Long-term deposits reached US$ 15.0 billion or 31.2 percent of total external debt. Non-guaranteed debt owed by the private sector registered US$ 22.5 million or 0.1 percent of total external debt. Short-term debt retreated by US$ 1.1 billion, to stand at US$ 2.6 billion because of the fall in short-term deposits of non-residents by US$ 97.2 million, to reach US$ 1.3 billion, and in short-term trade facilities by US$ million to US$ 1.3 billion. Bilateral loans (rescheduled and non-rescheduled), in addition to buyers' and suppliers' credit. Issued by the Ministry of Finance for the benefit of the Saudi Development Fund.

45 30 2- External Debt by Debtor Debt of the monetary authority (the CBE) accelerated by US$ 5.3 billion to post US$ 16.3 billion and of banks by US$ million to US$ 2.4 billion. By contrast, the external debt owed by the central government and other sectors fell by US$ 3.4 billion and US$ million, respectively, to US$ 25.7 billion and US$ 3.7 billion. External Debt by debtors June 2014 June 2015 Central & Local Gov ernment 63.1% Monetary Authority 23.9% Central & Local Gov ernment 53.5% Monetary Authority 33.9% Banks 3.3% Banks 4.9% Other Sectors 9.7% Other Sectors 7.7% 3- External Debt by Currency Breakdown of currency composition of external debt showed that the US dollar was the main currency of borrowing, with a relative importance of 69.6 percent, because of the outstanding obligations in the US dollar to creditors other than the USA. The euro came next with a share of 13.3 percent, followed by the Kuwaiti dinar (5.0 percent), then the Japanese yen (4.9 percent), and the SDRs (4.6 percent). External Debt by Major Currencies End of June 2015 Euro 13.3% Japanese yen 4.9% SDRs 4.6% US dollar 69.6% Other currencies 2.6% Kuwaiti dinar 5.0%

46 4- External Debt by Creditor 31 The breakdown of external debt by creditor revealed that 19.1 percent of total debt was owed to the main five Paris Club members; namely Germany (5.9 percent), Japan (4.7 percent), the USA (4.4 percent), France (3.4 percent), and the UK (0.7 percent). On the other hand, debt to Arab countries accounted for 37.7 percent, mainly Saudi Arabia * (11.4 percent), UAE (11.1 percent), Kuwait (10.4 percent), and Libya (4.3 percent). Debt to international and regional organizations represented 25.5 percent and Egyptian bonds and notes 10.3 percent. External Debt by Creditor End of June 2015 Egyptian bonds and notes 10.3% International organizations 25.5% USA 4.4% France 3.4% Japan 4.7% Germany 5.9% United Kingdom 0.7% Other countries 7.4% Arab Countries 37.7% External Debt Service Payments of external debt service (medium- and long-term) reached US$ 5.6 billion during FY 2014/2015. Of this amount, principal repayments made up US$ 4.9 billion and interest payments US$ 0.7 billion. USD mn Total Medium and Long Term External Debt Service During FY repayment of US$ 1.3 billion of guaranteed bonds repayment of US$ 1.0 billion of mediumterm bonds and repayment of US$ 500 million of saudi bonds repayment of UAE, Saudi and Kuwaiti deposits repayment of US$ 1.4 billion of mediumterm bonds / / / / / / / / / / / / / / /25 Actual Projection Principal Interest Total * Including long-term deposits at the CBE from the Saudi Fund for Development (SFD), and excluding the US$ 500 million, classified as Egyptian bonds issued by the Ministry of Finance to the SFD.

47 32 Indicators of External Debt Main indicators of external debt during the year ending in June 2015 compared with the preceding one, showed that the external debt per capita went up to US$ from US$ Similarly, the ratio of debt service to current receipts and to exports of goods and services rose to 8.5 percent and 12.7 percent, respectively (from 4.3 percent and 7.3 percent). Meanwhile, the ratio of external debt to GDP decreased to 14.9 percent from 15.6 percent. Also, the ratio of short-term debt to net international reserves inched down to 12.8 percent from 21.9 percent in the year of comparison % External Debt Indicators FY % / / / /15 Debt Service / Current Receipts (including transfers) Debt Service / Exports of Goods and Services Short-term Debt / Total External Debt Short-term Debt / Net International Reserves / / / /15 Government External Debt / External Debt External Debt /GDP External Debt per capita (US$) (right axis) US$ Main Indicators of External Debt FY 2012/ / /2015 * Debt balance/gdp Short-term debt/net international reserves Short-term debt/external debt Debt service ** /Exports of goods and services Debt service ** /Current receipts (including transfers) External debt per capita (US$) * Provisional ** Including interest payments on dollar sovereign bonds. + According to the latest revised data received from the Ministry of Planning, Follow-up, and Administrative Reform. (%)

48 33 In terms of international comparison, the indicators of external debt in Egypt, relative to peer regional country groups showed that Egypt s indicators lay within safety limits, as per the IMF classification. Egypt s debt as a percentage of GDP (14.9 percent) came among the best global levels that ranged between 16.3 percent (for developing Asian countries) and 68.9 percent (for East and Central European countries). Moreover, by recording 12.7 percent, the indicator of debt service/exports of goods and services was lower than global forecasts for 2015, that ranged between 17.2 percent (for sub-saharan Africa) and 58.6 percent (for East and Central Europe). The table below shows main debt indicators in a number of economic regions: Debt Service / Exports of Debt Balance / GDP Goods and Services East & Central Europe Developing Asia Middle East & North Africa Sub-Saharan Africa Source: IMF World Economic Outlook - April Estimates. - New Commitments on Loans and Facilities During the reporting year, new commitments on loans and facilities amounted to US$ 7.1 billion, compared with US$ 2.3 billion a year earlier. Specifically, loans from international and regional organizations registered US$ 6.5 billion or 91.4 percent of total commitments. Also, bilateral loans accounted for US$ million or 8.6 percent of total commitments.

49 34 1/8- Human Resources Development (HRD) The Central Bank of Egypt continues its efforts to develop and raise the efficiency of the human resources in the banking system. To this end, the Egyptian Banking Institute (EBI), an affiliate to the CBE, undertakes a wide range of activities aimed to hone the skills of the banking cadres in a manner that achieves both the institutional development and outstanding performance of the banking system being the mainstay for sustainable development. 1/8/1- Activity of EBI During FY 2014/2015, the number of training programs delivered by the EBI increased by 6.7 percent, as compared with the preceding FY. Among these programs was the program for "Future Leaders" which is crucial for preparing the future banking leaderships. In this regard, the 18th and 19 th batches of the program were graduated in the reporting year. This is besides the "Emerging Leaders Program" that helps junior bankers to develop their performance and to create a new generation of young leaders capable of innovation, of keeping abreast of latest developments, of applying the administrative skills, and of thinking outside the box, which all provide fertile soil for the institutional development. The following chart shows the number of participants and the training hours during FY 2014/2015 in comparison with the previous FY: A Comparison of the Training Activity Participants Hours 2013/ /2015

50 35 The following chart shows the distribution of participants according to the training packages through FY 2014/2015. The Relative Distribution of the No. of Trainees in Training Programs Performance evaluation 29% Small and medium Governance enterprises 1% 4% Banking and financial programs 52% Information Technology 14% The EBI Board of Directors, chaired by the CBE Governor, approved the establishment of the Assessment Services Unit that carries out assessment projects for a number of banks and Egyptian organizations to assist them in reaching recruitment, promotion or development decisions. As the CBE is concerned with facilitating SME's access to finance, and is aware of the importance of catching up with the latest international expertise in this field, the EBI, arranged a number of field visits to countries with successful experience in the area of financing SMEs for exchanging experiences and identifying the basics of best international practices. The SMEs Unit at EBI, in cooperation with IFC organized a field visit to the United Kingdom for SMEs Units' managers at the Egyptian and Jordan banking sectors. The United Kingdom model was chosen because of its distinguished formal financial and banking sector, in addition to its successful experiences in this field. During the visit, meetings were held with the leaders of a variety of banks that are pioneers in financing "SMSs" such as the British Business Bank, Royal Bank of Scotland, HSBC, Barclays Bank, and some institutions supporting the "SMSs" such as the British Bankers' Association, UK Trade and Investment; and Moody's which provides credit ratings for countries and institutions.

51 36 Moreover, the SMEs Unit organized a field visit to Malaysia for participants who attained "SMEs Banking Certificate". Such a visit is considered part of SMEs Unit's training program. The reason behind choosing the Malaysian model was its successful experience in the field of financing SMEs, in addition to the resemblance between the Egyptian and Malaysian markets. The visit included holding meetings with the leaders of pioneering banks in SMEs financing, such as: Malayan Banking Berhad, Public Bank Berhad, Small Medium Enterprise Development Bank Malaysia Berhad, Bank Negara Malaysia, Credit Guarantee Corporation, Small and Medium Enterprises Corporation, Financial Mediation Bureau, Malaysian Industrial Development Finance Berhad, AmBank group, and Asian Institute of Chartered Bankers. The EBI Corporate Governance Unit, in collaboration with the Prudential Regulations Unit at the CBE's Supervision Sector, is dedicated to raise the awareness on corporate governance systems and instructions. To that end, the Unit provides a package of training programs for senior and middle managements to raise their awareness about governance practices, to build qualified cadres to implement the instructions of the CBE in this regard and to apply the best governance practices across the financial services sector. To achieve this aim, a field visit was arranged for banks' board members to the USA, where they visited Standard Chartered Bank, City Bank- NY, and Federal Reserve Bank of New York. In order to activate the initiative of the EBI entitled "Shaping the Future", the Institute, jointly with several partners, implemented a variety of activities such as: i) organizing courses on financial education, ii) arranging a visit to Talaat Harb's Museum at Banque Misr, iii) organizing field visits to banks and Egyptian Exchange (EGX), and V) arranging Train- The -Trainer courses for employees of the Ministries of "Education, and Youth and Sports " during the ''Global Money Week, in which the EBI targeted 1.5 million youth and children. To implement the instructions of the CBE, the EBI also formed a coordinating committee in November 2013 to set a national strategy for financial literacy in Egypt like many countries all over the world. The committee is comprised of representatives from various concerned entities, headed by the CBE, ministries such as the Ministry of Finance, Ministry of Youth and Sports, Ministry of Education, Ministry of Higher Education, government entities, banks, financial institutions, non-government organizations, academicians, and some donor entities. In 2014/15, the Committee came up with the vision and the message of the strategic goals, and the segments targeted by the strategy.

52 37 At the regional level, after launching an initiative to establish the Arab Banking Training Network (ABTN), the EBI held the third meeting of the ABTN on January 2015 at the invitation of the Emirates Institute for Banking and Financial Studies, and with the participation of the chairmen of Arab banking institutes and representatives of central banks from thirteen countries, namely, Egypt, Palestine, Jordan, Mauritania, Kuwait, Saudi Arabia, Bahrain, United Arab Emirates, the Sultanate of Oman, Qatar, Sudan, Morocco, and Lebanon. During the meeting, the amendments to the executive regulations were discussed and approved, and the work plan of the ABTN for the year 2015 was discussed. The EBI devotes special attention to broadening cooperation with distinguished global institutions and organizations to benefit from international experiences and provide the Egyptian banking sector with the best practices in international banking industry via cooperation with major international institutions. 1/8/2- CBE Staff Programs The number of participants in the training programs for CBE staff reached 2458 trainees in FY 2014/2015, involving 1884 participants in local programs (specialized and administrative, language and computer courses), 326 trainees in qualifying programs, and 179 participants in external programs. Also, 69 employees at the Bank completed their post-graduate studies. No Participants from the CBE in Training and qualifying Programs Preparation programs External programs 8 69 Post graduate programs Local programs 2013/ /2015 In the year under review, the Banking Institute offered diverse training programs, involving 1965 trainees. These programs covered various topics of interest such as the "Credit Certificate", and other specialized programs in the banking field, including credit and finance, banking operations, banking risks, in addition to programs that enrich leadership and basic skills.

53 Chapter 2 : Banking Developments 2/1 Financial Position 2/2 Deposits 2/3 Lending Activity 2/4 Cash Flows 2/5 Bank Performance Indicators

54 39 Chapter 2 Banking Developments 2/1- Financial Position The aggregate financial position of registered banks operating in Egypt (38 in number) * posted LE billion at end of June 2015, up by LE billion or 21.0 percent in FY 2014/2015, well above the figures of the previous FY (LE billion or 16.2 percent). Relative Structure of Liabilities (End of June 2015) Other Liabilities 7.6% Equities 6.5% Provisions 3.0% Bonds & Long-term Loans 1.7% Obligations to Banks Abroad 1.4% Obligations to Banks in Egypt 0.9% Total Deposits 78.9% The bulk of the rise on the liabilities side (roughly 79.8 percent) emanated from deposits at banks which grew by LE billion or 21.3 percent, posting LE billion and representing 78.9 percent of the aggregate financial position of banks at end of June Increases were also observed in: (i) banks equities by LE 18.1 billion or 14.5 percent, (ii) obligations to banks abroad by LE 15.4 billion or percent, (iii) bonds and long-term loans by LE 8.3 billion or 27.5 percent, (iv) banks provisions by LE 3.3 billion or 5.2 percent, (v) obligations to banks in Egypt (including the CBE) by LE 2.9 billion or 16.3 percent, and (vi) other liabilities by some LE 29.4 billion or 21.4 percent. * After adding the Arab International Bank to the Register of Banks, and the approval of the CBE's BOD to go ahead with the procedures of crossing out the National Bank of Oman, and ruling out Bank of Nova Scotia after the approval of the Arab African International Bank to acquire all of its loans and deposits.

55 40 Change in Liabilities (LE mn) Change in FY 2013/ /2015 Value % Value % Capital Reserves Provisions Bonds and long-term loans (144) (0.5) Obligations to CBE (1760) (37.7) (401) (13.8) Obligations to banks in Egypt (5990) (28.6) Obligations to banks abroad (523) (3.4) Total deposits Other liabilities, of which: Payable cheques Total Liabilities Relative Structure of Assets (End of June 2015) Loan & Discount Balances 32.7% Other Assets 6.5% Cash 1.2% Securities& Investments 46.2% Balances with Banks in Egypt 10.9% Balances with Banks Abroad 2.5% On the assets side, the increase mainly reflected the growth in banks' investments in securities and TBs by LE billion or 23.1 percent, to stand at LE billion, representing 46.2 percent of the aggregate financial position of banks at end of June Likewise, lending and discount balances rose by LE billion or 22.1 percent to record LE billion or 32.7 percent of the aggregate financial position. This is in addition to the hikes in balances with local banks (including the CBE) by LE 65.6 billion or 37.5 percent, cash by LE 0.1 billion or 0.4 percent, and other assets by LE 19.7 billion or 16.1 percent. Meanwhile, balances with banks abroad dropped by LE 23.9 billion worth or 30.4 percent.

56 41 Change in Assets (LE mn) Change in FY 2013/ /2015 Value % Value % Cash (1951) (6.7) Securities and investments Balances with CBE Balances with banks in Egypt, of which: (7374) (33.9) Lending and discount (590) (61.9) Balances with banks abroad, of which: (23908) (30.4) Lending and discount (764) (33.5) Lending and discount balances (market) Other assets (582) (0.5) Total Assets % Relative Structure of Banks' Portfolio Investment June June Treasury Bills Gov. Bonds Non-gov. Bonds Corp. Equities Foreign Securities The increase in banks' investments in securities and bills was mostly in government bonds (up by LE billion) and treasury bills (up by LE 71.8 billion). Banks' investments in corporate equities and non-government bonds also rose by LE 4.6 billion and LE 1.7 billion, respectively. However, this increase was curbed by the drop of LE 5.0 billion worth in banks' investments in foreign securities. In 2014/2015, net transactions of local banks with correspondents abroad fell by the equivalent of LE 39.4 billion or 61.5 percent, amounting to LE 24.7 billion worth at end of June 2015 (against LE 64.0 billion worth at end of June 2014). The decline was a dual effect of the drop in their balances with banks abroad by LE 23.9 billion worth and the pickup in their obligations thereto by LE 15.5 billion worth.

57 42 Transactions with Banks Abroad (LE mn) Change in FY End of June June 2013/ / Value % Value % Net Position (39356) (61.5) Balances with banks abroad (23908) (30.4) Obligations to banks abroad (523) (3.4) /2- Deposits Banks' deposits (including government deposits) grew, during the reporting year, by LE billion or 21.3 percent (versus LE billion and 20.4 percent in the previous FY), standing at LE billion or 78.9 percent of banks' aggregate financial position at end of June About 90.6 percent of the increase resulted from local currency deposits which rose by LE billion or 25.2 percent, to LE billion at end of June Deposits in foreign currencies registered an increase of LE 28.7 billion worth or 8.6 percent, scoring LE billion worth at end of June Deposits at Banks by Sector (LE mn) Local Currency Foreign Currencies End of June Total Government sector Public business sector Private business sector Household sector External sector The household sector accounted for the lion's share of the increase in local currency deposits (39.9 percent of the rise). Specifically, its deposits scaled up by LE billion or 13.2 percent to LE billion at end of June Deposits of the private business sector mounted by LE 78.4 billion or 51.7 percent, those of the government sector by LE 70.7 billion or 90.1 percent, those of the public business sector by LE 11.6 billion or 43.9 percent, and those of the external sector by LE 5.1 billion or percent.

58 43 Almost 74.8 percent of the increase in foreign currency deposits came from the household sector, whose deposits mounted by LE 21.5 billion worth. Similarly, deposits of the private business and public business sectors moved up by the equivalent of LE 4.1 billion and LE 1.3 billion, in order. In addition, the government and external sectors' deposits climbed by the equivalent of LE 0.9 billion each. Change in Deposits by Sector Local Currency Foreign Currencies (10) 2013/ / / /2015 Government sector Public business sector Private business sector Household sector External sector 2/3- Lending Activity Banks' lending activity expanded by LE billion or 22.1 percent in the reporting year (against LE 38.7 billion and 7.1 percent), registering LE billion and constituting 32.7 percent of total assets and 41.4 percent of total deposits at end of June Bank Loans by Sector (LE mn) Local Currency Foreign Currencies End of June Total Government sector Public business sector Private business sector Household sector External sector The pickup in lending and discount balances came on the back of the rise in local currency loans by LE 61.0 billion or 14.6 percent, to LE billion at end of June 2015, and in those extended in foreign currencies by LE 69.1 billion worth or 40.8 percent, to LE billion worth.

59 44 Around 47.1 percent of the increase in local currency loans was mainly pronounced in the household sector whose share soared by LE 28.7 billion or 20.1 percent. Similarly, loans to the private business sector rose by LE 24.6 billion or 10.8 percent, standing at LE billion and making up 52.7 percent of total LE loans. Loans to the public business sector surged as well by LE 8.6 billion or 24.6 percent and those to the external sector by LE 0.1 billion. However, loans to the government sector fell by LE 1.0 billion or 8.6 percent. Accounting for around 43.2 percent of the rise in lending and discount balances in foreign currencies, the share of the private business sector increased by LE 29.9 billion worth or 24.7 percent, to LE billion, representing 63.3 percent of the total at end of June Likewise, loans extended to the government sector scaled up by LE 26.6 billion worth or 92.1 percent, those to the public business sector by LE 9.2 billion worth or 92.4 percent, those to the external sector by LE 2.1 billion worth or 28.7 percent, and those to the household sector by LE 1.3 billion worth or 64.2 percent. The relative distribution of loans by economic activity at end of June 2015 indicates that the manufacturing sector was the major recipient with a share of 38.5 percent of the total loans provided by banks in both local and foreign currencies. The unclassified sectors, including the household sector, came next (25.9 percent), followed by the services sector (25.0 percent), then trade (9.4 percent) and agriculture (only 1.2 percent). LE bn Credit Facilities by Economic Activity At End of June 2015 Foreign Currencies Local Currency

60 45 At end of June 2015, loans and advances (excluding discounts) by maturity registered LE billion, with an increase of LE billion or 22.2 percent during the reporting year. The increase was ascribable to the growth in short-term loans (one year or less) by LE 65.2 billion or 23.5 percent (owing to the rise in both foreign and local currency loans by LE 41.2 billion and LE 24.0 billion worth, in order). Furthermore, long-term loans (more than one year) increased by LE 64.4 billion or 21.0 percent, due to the growth in local and foreign currency loans by LE 36.1 billion and LE 28.3 billion worth, respectively. 2/4- Cash Flows Monitoring banks' cash flows arising from local and foreign operations aims at identifying the sources and uses of funds during the fiscal year. Banks' sources of funds come from either an increase in obligations or a decrease in assets. Uses of funds are directed to increasing assets or reducing obligations. Regarding local operations, the resources of banks were generated from the increase in obligations (up by about LE billion) in FY 2014/2015. The rise in obligations came mainly from deposits at banks which grew by LE billion (90.6 percent of which was in local currency). About 43.2 percent of the rise in deposits was contributed by the household sector whose deposits rose by LE billion. Similarly, equities hiked by LE 18.0 billion as well as loans and bonds by LE 8.3 billion. In addition, obligations to banks in Egypt and provisions both increased by LE 3.3 billion each, and so did other liabilities (LE 29.4 billion). Local uses were mostly directed to increase assets by LE billion, while obligations were reduced by only LE 0.4 billion. In figures, portfolio investment augmented by LE billion (mostly in government bonds and bills). Lending and discount balances increased by LE billion. Increases were also seen in balances with the CBE (by LE 60.2 billion), those with local banks (by LE 5.3 billion), cash (by LE 0.1 billon), and other asserts (by LE 19.7 billion). The reduction in obligations, on the other hand, came on the back of the decline in obligations to the CBE by LE 0.4 billion. Cash flows of banks in the reporting year revealed a deficit of LE 44.4 billion in local operations. However, external operations showed a surplus equal to that deficit. This indicates that the deficit of local operations was financed by the surplus of external operations.

61 46 Banks' Cash Flow Statement * Local Operations (LE mn) 2013/ / Total Resources: A. From the Increase in Obligations (Liabilities) Deposits Capital accounts (equities) Obligations to local banks Provisions Loans and bonds Other liabilities B. From the Decrease in Assets Cash Balances with local banks Other assets Total Uses: A. To Reduce Obligations Obligations to the CBE Obligations to local banks Loans and bonds B. To Increase Assets Portfolio investment Lending and discount Balances with the CBE Balances with local banks Cash Other assets Sources/Uses Surplus (+) or Deficit (-) * Figures in this statement represent the difference between the balances at end of the reporting year and the preceding year. As for banks' external operations, resources emanated from the increase in obligations and the decrease in assets. The rise in obligations stemmed mainly from the surge in obligations to banks abroad by the equivalent of LE 15.5 billion. On the other hand, the reduction in assets resulted from the fall in balances with banks abroad by LE 23.9 billion worth, and the decline in banks' portfolio investment by LE 5.0 billion worth.

62 47 Banks' Cash Flow Statement * External Operations (LE mn) 2013/ / Total Resources: A. From the Increase in Obligations Obligations to banks abroad B. From the Decrease in Assets Balance with banks abroad Portfolio investment Total Uses: A. To Reduce Obligations Obligations to banks abroad B. To Increase Assets Balances with banks abroad Sources/Uses Surplus (+) or Deficit (-) * Figures in this statement represent the difference between the balances at end of the reporting year and the preceding year. 2/5- Bank Performance Indicators The following are the results realized by banks according to their financial positions at end of June 2015: First: Capital Adequacy Ratio Within the framework of applying Basel II standards, local banks (excluding branches of foreign banks) are required to maintain a minimum capital adequacy ratio of 10 percent of the capital base (numerator) to risk-weighted assets (denominator), to cover credit, market and operational risks. As for branches of foreign banks, they are subject to Basel II regulations, except for maintaining the aforementioned ratio.

63 48 A follow-up of banks compliance with this standard International Bank) revealed the following findings: (including the Arab For banks combined, the ratio reached 13.5 percent (against a minimum established ratio of 10.0 percent). The banks' tier 1 capital reached 11.5 percent (against 6 percent as of the first of January 2015), while common equity stood at 11.2 percent (against 4.5 percent as of the 1 st of January 2015). All banks abided by the minimum capital adequacy ratio of 10 percent, except for three banks that are kept under continuous scrutiny by the CBE. Capital Adequacy Standard at End of June 2015 More than 20% (7 banks) Less than 10% (3 banks) from 15% to 20% (12 banks) from 10% to 15% (16 banks) Second: Asset Quality On 24 May 2005, the CBE issued the regulations governing customer credit rating and provisioning. The regulations comprise lending to institutional customers, taking into account the obligor risk rate (ORR), loans for consumer purposes, real estate loans for personal housing, and loans for small-sized economic enterprises. The following chart shows the beneficiary entities of credit facilities Banks' Contingent Liabilities and Loans Consumer loans & real estate loans for personal housing 16.0% Lending to corporates 80.6% Loans to smallsize economic enterprises 3.4% The Arab International Bank started submitting its periodical statements as of March 2015.

64 49 The ratio of non-performing loans and facilities to total loans and facilities reached 7.6 percent, whereas the provisions of loans and facilities/ non-performing loans and facilities registered 98.7 percent. Third: Profitability (excluding the Arab International Bank) This indicator shows the level of profitability realized by a bank, its ability to strengthen its equities, and to distribute dividends among its shareholders. The return on average assets and equities of the banking system reached 1.3 percent and 18.9 percent, in order, while net interest margin was 3.7 percent for FY A follow-up of banks' profitability levels revealed the following: A- Banks whose FY ends June 30 (public sector banks and the Export Development Bank of Egypt) Net profits amounted to LE 5403 million for the FY ending 30 June (The surge in profits in 2014 compared with that of 2013 was traced to the increase in profits realized by Banque Misr, and to the fall in losses realized by the Principal Bank for Development and Agricultural Credit). The ratios of banks' net profits to average assets and to average equities in 2014 stood at 0.7 percent and 14.8 percent, in order (against 0.3 percent and 5.4 percent in 2013). Net Profits of Commercial Banks Whose FY Ends June 30 LE mn Except for one bank.

65 50 B- Banks whose FY ends December 31 Banks' net profits for the FY ending December 31, 2014 registered LE million. The ratio of banks' net profits to average assets was 1.9 percent (against 1.7 percent in 2013), and to average equities 22.4 percent (against 19.5 percent). Net Profits of Commercial Banks Whose FY Ends December 31 LE mn Except for one bank.

66 Chapter 3: 3/1 3/1/1 3/2 3/3 3/3/1 3/3/2 3/4 3/4/1 3/4/1/1 3/4/1/2 3/4/2 3/4/2/1 3/4/2/2 3/4/2/3 3/4/2/4 3/5 3/5/1 Macroeconomic Developments Gross Domestic Product (GDP) Labor Force, Employment and Unemployment Inflation Public Finance Budget Sector (Administrative System, Local Administration and Service Authorities) Consolidated Fiscal Operations of the General Government Balance of Payments and External Trade Balance of Payments Current Account Capital and Financial Account External Trade Distribution of Merchandise Exports Distribution of Merchandise Imports Geographical Distribution of External Trade Breakdown of External Trade by Main Commodity Non-Banking Financial Services Sector Stock Market

67 51 Chapter 3 Macroeconomic Developments 3/1- Gross Domestic Product (GDP) According to the data issued by the Ministry of Planning, Follow-up and Administrative Reform 1, the economic performance has improved in FY 2014/2015. Real GDP growth at factor cost rose to 3.1 percent from 2.2 percent a year earlier. This reflected the noticeable improvement in economic performance, especially in Q1 (July/Sept.) and Q2 (Oct./ Dec.), in which GDP growth registered 4.5 percent and 3.7 percent, respectively. However, the increase in GDP growth was curbed by the limited growth of 2.2 percent in Q3 (January/ March) and 2.1 percent in Q4 (April/June) of the said year. Meanwhile, GDP at market prices grew by 4.2 percent in the reporting year (compared with 2.2 percent a year earlier). Real GDP Value (in LE bn) Real GDP Growth (%) FY April/June FY April/June 2013/ / / / / / / /15 Real GDP at factor cost Indirect taxes (net) Real GDP at market prices Source: Table (1) in the Statistical Annex. The base year is 2011/2012. % Real GDP Growth Developments (At Factor Cost) / / / / / /2015 July/Sept. Oct./Dec Jan./Mar. Apr./June July/Sept. Oct./Dec. Jan./Mar. Apr./June July/Sept. Oct./Dec. Jan./Mar. Apr./June July/Sept. Oct./Dec. Jan./Mar. Apr./June July/Sept. Oct./Dec. Jan./Mar. Apr./June 2010/ / / / / It is worth mentioning that the Ministry of Planning, Follow-up, and Administrative Reform revised GDP estimates based on the economic census for FY 2012/13 that was issued by the CAPMAS in December 2014 for the first time after a halt of 15 years. The results of the economic census helped cover a larger number of enterprises, as well as enabled access to new and actual sources of data. This, in turn, helped improve the estimates of the size of the informal sector.

68 52 GDP (at factor cost and 2011/2012 prices) On the supply side, the rise in the real GDP growth at factor cost (3.1 percent) during the reporting year (compared with that of comparison) reflected the higher contributions of some sectors. Specifically, the share of tourism increased to 0.3 percentage point (against negative 1.3 point), the general government to 0.7 point (against 0.5 point), construction and building to 0.4 point (against 0.3 point) and Suez Canal to 0.1 point (against nil). However, the rise in GDP growth was mitigated by the slackening contributions of the following sectors: manufacturing (0.5 percentage point against 0.8 point), real estate (0.3 point against 0.6 point), wholesale and retail trade (0.5 point against 0.7 point), financial intermediation (0.1 point against 0.2 point), and social services (0.1 point against 0.2 point). Meanwhile, the contributions of other sectors remained unchanged % Real Growth Rates during the FY (Annual Basis) Agriculture, Forests & Fishing Extractions Manufacturing Electricity Water, Sanitation & Recycling Construction & Building Transportation & Storage Communications Information Suez Canal Wholesale & Retail Trade Finance Social Insurance & solidarity 2014/ / Tourism Real Estate General Government Education, Health Services & Personal Services As regards the private and public sectors' contributions to real GDP growth, the former continued to be the main driver of economic activity, as its share increased to 2.5 percentage points (from 1.7 percentage points). This came on the back of the higher contributions of some sectors as well as the lower and stable contributions of others. Increases were seen in the shares of tourism (0.3 percentage points against negative 1.2 point) and construction and building (0.4 point against 0.3 point). Meanwhile, decreases were observed in the shares of wholesale and retail trade (0.4 point against 0.7 point), real estate (0.3 point against 0.6 point), manufacturing (0.5 point against 0.6 point), and social services and transportation & storage (0.1 point against 0.2 point each). The contributions of other sectors combined remained unchanged at 0.4 percentage point.

69 53 On the other hand, the share of the public sector in GDP growth rose to 0.6 percentage point (against 0.5 point). This was mainly due to the rise in the contribution of the general government to 0.7 percentage point (from 0.5 point) and those of construction & building, and Suez Canal to 0.1 point each (against nil). However, the higher contribution of the public sector was mitigated by the weak performance of manufacturing (nil against 0.2 point). GDP by Expenditure (at 2011/2012 market prices) On the demand side, the domestic demand (consumption and investment) continued to have the lion's share in GDP growth at market prices (4.2 percent). Its contribution amounted to 4.4 percentage points (compared with 4.3 points). The share of domestic demand was a combined result of the contributions of final consumption (government and private) and capital formation. The former added 3.1 percentage points, while the latter shared with 1.3 point. Meanwhile, external demand (exports of goods and services less imports of goods and services) contributed a negative 0.2 percentage point (against a negative 2.1 point), reflecting the 0.4 percent drop in exports and the 0.5 percent rise in imports. (Percentage point) Contributions of Demand Side Categories to Real GDP Growth (at market prices) / /2015 Apr./June 2013/2014 Apr./June 2014/2015 Net Exports Capital Formation Final Consumption Real Growth Rate Investments (at current prices) augmented by 25.9 percent during FY 2014/2015, to register LE billion, as compared with the preceding FY. The relative distribution of 91.5 percent of these investments ran as follows: productive services (30.2 percent); extractions (15.5 percent); manufacturing (12.8 percent); social services (education, health and sanitation) (12.5 percent); real estate (10.7 percent); electricity (5.8 percent); and agriculture, irrigation and fishing (4.0 percent). Including, transportation and storage; communications; information; Suez Canal; wholesale and retail trade; financial intermediation; social insurance and solidarity; and tourism.

70 54 Growth Rates and Share of Demand Components in Real GDP Growth at Market Prices Share in Real GDP Growth (Percentage Point) * Growth Rate (%) FY April/June FY April/June 2013/ / / / / / / /15 Real GDP Growth Domestic Demand A- Final Consumption Private Public B- Capital Formation (Including Change in Stock) Net External Demand A- Exports of Goods and Services B- Imports of Goods and Services Contributions of individual sectors may not sum to total growth due to rounding Source: GDP growth rates are illustrated in Table (6/2) of the Statistical Annex. Contributions of demand components are calculated by researchers.

71 3/1/1- Labor Force, Employment and Unemployment 55 According to CAPMAS quarterly Labor Force Sample Survey (LFS) for Q4 (April/June 2014/15), labor market indicators continued to improve, thanks to the improved performance of certain economic activities in the said quarter. The size of the labor force rose by thousand persons (or 0.8 percent), as compared with the corresponding quarter a year earlier, reaching 27.8 million persons. Similarly, the number of employed mounted by thousand persons or 1.5 percent, to 24.3 million persons. The sector of agriculture and fishing continued to acquire the majority of the total number of employed (25.0 percent), followed by construction and building (12.4 percent), wholesale and retail trade (11.5 percent) manufacturing (10.7 percent), and education (9.6 percent)). Labor Market Indicators Unemployment Rate (%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010/ / / Employment & Labor Force Growth Rate (Annual Basis) % Unemployment Labor Force Employment As a result, the number of unemployed retreated by thousand persons in Q4 to reach 3.5 million persons,. Thus, unemployment fell to 12.7 percent of the total labor force (from 13.3 percent in the corresponding quarter of the preceding FY and 12.8 percent in the previous quarter (January/ March 2015). Nevertheless, this rate is still high if compared with that of the same quarter of FY 2009/2010 (9.0 percent). It is worth mentioning that 83.2 percent of the total jobless persons hold educational certificates, including 31.0 percent with a university or post graduate degrees and 52.2 percent with an intermediate or upper intermediate degrees. Furthermore, unemployment among youth (aged between 15 and 29 years) amounted to 26.6 percent of the total labor force of this age. According to the quarterly LFS for Q4, jobless males declined to 9.3 percent (from 9.8 percent in the corresponding quarter) and jobless females to 24.1 percent (from 24.8 percent). Unemployment in the urban sections declined to 14.9 percent (from 16.0 percent), and increased in rural areas to 11.0 percent (from 10.3 percent).

72 56 3/2- Inflation Consumer Price Index (CPI) The annual headline CPI (urban) picked up by 11.4 percent in June 2015 (versus 8.2 percent in June 2014). That rise was ascribed to the higher contributions of some main groups, namely; housing, water, electricity and fuel (0.9 point against 0.5 point); transportation (1.0 point against 0.3 point); education (1.3 point against 0.2 point); restaurants and hotels (0.9 point against 0.2 point); culture and recreation (0.4 point against 0.3 point); clothing and footwear (0.3 point against 0.1 point); alcoholic beverages and tobacco (1.2 point against 0.3 point); and miscellaneous goods and services (0.1 point against nil). However, the rise in inflation was held back by the lower contributions of food and beverages (5.1 points against 5.2 points); health care (0.1 point against 0.7 point); and furnishings, household equipment and routine maintenance (0.1 point against 0.4 point). 20 Annual Inflation Rates for Headline Consumer Price Index (CPI) & Food and Non-Alcoholic Beverages (Urban) (Jan 2010=100) Jun-13 Jul Aug Sept Oct Nov Dec All Items Jan-2014 Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan-15 Feb Mar Apr Food and Non - Alcoholic Beverages May Jun-15 The decline in the shares of food and beverages came on the back of the lower contributions of the following groups: meat and poultry (1.7 point against 2.2 point); fish and seafood (0.2 point against 0.8 point); milk, cheese and eggs (0.5 point against 1.1 point); and other foodstuffs (nil against 0.1 point). Such a decline was curbed by the higher contributions of vegetables (1.8 points against 0.6 point); fruits (0.5 point against 0.2 point); and cereals and bread (0.2 point against nil) and the stable contributions of oils and fats, as well as sugar and confectionaries at 0.1 point each.

73 57 Percentage Points Contribution of Main Items of Food & Non-alcoholic Beverages to Annual Headline Inflation / / Bread & Cereals Meat & Poultry Fish & Seafood Milk, Cheese & Eggs Oils and Fats Fruits Vegetables Sugar Other food products Coffee,Tea & Cocoa Mineral & Soda Water, Fresh Juices The following table shows the shares of CPI groups (urban) in headline inflation in the years of review and comparison: Main CPI Groups Relative Weight Change Rate (%) in FY Share in Headline Inflation (Percentage point) In FY 2013/ / / /15 General Index Food & beverages Housing, water, electricity, gas & fuel Healthcare Transportation Clothing and footwear Education Restaurants and hotels Furnishings, household equipment and routine maintenance Miscellaneous goods and services Communications Culture & recreation Alcoholic beverages and tobacco Source: Central Agency for Public Mobilization and Statistics (CAPMAS). For the shares of CPI groups, they were calculated by researchers at the Economic Research Sector.

74 58 Urban headline CPI (m/m) rose to 0.9 percent on average in the year under review (from 0.7 percent in the year of comparison). % Monthly Inflation Rate According to CPI (Urban) Jun-2013 Jul Aug Sep Oct Nov Dec Jan-2014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-2015 Feb Mar Apr May Jun-2015 Producer Price Index (PPI) The annual headline PPI decreased by 2.2 percent in June 2015, against an increase of 4.3 percent in June The retreat in the PPI inflation was traced to the lower contributions of mining and quarrying ( negative 8.2 points against 1.2 point); and electricity, gas, steam, and air conditioning supplies (0.4 point against 0.7 point). However, increases were seen in the contributions of manufacturing (3.3 point against 1.0 point); food services and accommodation (0.3 point against negative 0.2 point); transportation and storage (0.4 point against 0.1 point); and water supply, sanitation, and waste treatment management (0.3 point against 0.2 point). Meanwhile, the contribution of agriculture and fishing remained stable at 1.3 percentage point. % Jun-2013 Jul Aug Annual Inflation Rate According to PPI (2004/2005=100) Sep Oct Nov Dec Jan-2014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-2015 Feb Mar Apr May Jun-2015

75 59 The following table illustrates the shares of the PPI groups in headline inflation during the years of review and comparison: Inflation Rates and Shares of PPI Groups (2004/2005=100) in Headline Inflation in the Years of Review and Comparison Main PPI Groups Relative Weight Change Rate (%) in FY Share in Headline Inflation (Percentage Point) in FY 2013/ / / /15 General Index Manufacturing Agriculture and fishing Mining and quarrying Food services and accommodation Transportation and storage Water supply, sanitation, and waste treatment management Information and Communications Electricity, gas, steam, and air conditioning supplies Source: For inflation rates: Table (1/4) in the Statistical Annex. For the shares of PPI group,,they were calculated by researchers at the Economic Research Sector.

76 60 3/3- Public Finance According to the Ministry of Finance's actual data on the fiscal operations of the state budget (administrative system, local administration and service authorities) for FY 2014/2015, total expenditures increased by LE 31.8 billion, outstripping the rise in total revenues (only LE 8.5 billion). Against this background, the overall deficit widened to LE billion in the reporting year, representing 11.5 percent of GDP (compared to LE billion and 12.2 percent of GDP in the previous FY). Ratios of Revenues, Expenditures & Overall Deficit/GDP Revenues & Expenditures (%) Overall Deficit (%) / / / /2015 Revenues Expenditures Overall Deficit A follow-up of the actual execution of the consolidated fiscal operations of the general government in FY 2014/2015 showed the following developments: 3/3/1 Budget Sector (Administrative System - Local Administration - Service Authorities) Total revenues rose by some LE 8.5 billion or 1.8 percent, to LE billion (19.2 percent of GDP), ascribable to the rise in tax revenues by LE 45.7 billion, to LE billion, and to the decline in non- tax revenues by LE 37.2 billion, to LE billion. In response to the better economic performance and the efforts made to raise the tax collection efficiency, tax revenues soared by LE 45.7 billion or 17.5 percent as a confluence of the following developments: - Taxes on goods and services rose by LE 31.0 billion, owing mainly to increases in: (i) sales taxes on cigarettes and petroleum products; (ii) stamp duties on gas, electricity and butane gas cylinders consumption, and insurance and advertisement; and (iii) the rise in taxes on services extended by some companies operating in the sectors of tourism and telecommunications on the back of the better performance of these sectors in the reporting year.

77 61 Total Revenues Non-Tax Revenues Tax Revenues 28.7% 5.5% 21.0% 22.0% 2013/2014 Actual 65.8% 57.0% Grants 2014/2015 Actual - Taxes on income and capital gains augmented by LE 8.9 billion, mainly due to: (1) higher receipts from taxes on companies by LE 13.4 billion, and (2) the pickup in proceeds from taxes on salaries by LE 6.8 billion in light of the increase in wages since the beginning of the fiscal year in July On the other hand, proceeds from taxes on Egyptian General Petroleum Corporation (EGPC), Suez Canal Authority, and the CBE rolled back by LE 10.1 billion, LE 0.9 billion, and LE 0.3 billion, respectively. - Taxes on international trade (customs) increased by LE 4.2 billion, thanks to higher merchandise imports on the one hand, and tightening control on customs outlets, on the other hand. - Property taxes moved up by LE 2.4 billion reflecting the rise in revenues from taxes on T-bills and bonds' payable interest, and taxes and fees on cars. - Other taxes dropped by LE 0.8 billion. The drop in non- tax revenues (LE 37.2 billion or 18.9 percent) is mainly explained by: 1) the drop in external grants by LE 70.5 billion, to record merely LE 25.4 billion (including the exceptional grants extended by Gulf Countries to provide financial support to Egypt, in view of its dire economic circumstances in FY 2013/2014), and 2) the fall in proceeds from selling goods and services by LE 2.0 billion, primarily due to the decline in current receipts from special accounts and funds during FY 2014/2015. Such a decline, however, was curbed by the rise in property income (by LE 25.7 billion), investment finance (by LE 4.4 billion), and other miscellaneous non-tax revenues (by LE 5.2 billion).

78 62 Total Expenditures Other Expenditures Purchases of Non- Financial Assets (Investments) 8.4% 6.8% 5.8% 7.5% 25.5% 27.1% Conpensation of Employees Subsidies, Grants &Social Benefits 27.1% 32.6% 2013/2014 Actual 24.7% 3.9% 4.3% Purchases of Goods and Services 2014/2015 Actual 26.3% Interest on Domestic & External Debt Total expenditures stepped up by LE 31.8 billion or 4.5 percent, to stand at LE billion (30.2 percent of GDP), compared with LE billion or 33.4 percent of GDP as a result of : 1- The rise in workers' wages and compensations by LE 19.9 billion. This item includes the raises effective as of the beginning of the FY and the costs of the minimum wage allowance, teachers' job burden allowance and the incentives of workers' specific cadres. 2- The increase in interest payments on domestic and external debt by LE 19.9 billion. 3- The surge in investments of budget sector related entities by LE 8.9 billion as the government continued to increase public investments to develop infrastructure (pursuant to the economic and social development plan for the FY) and housing projects, and to expand investments in health and education sectors. 4- The increase in spending on purchases of goods and services by LE 4.0 billion, (including the LE 2.3 billion increase in spending on goods, especially raw materials, and the LE 1.7 billion rise in spending on maintenance and transportation services). 5- The LE 9.2 billion rise in other miscellaneous current expenditures. 6- The LE 30.1 billion decline in subsidies, grants and social benefits, on account of oil subsidy cuts by some LE 52.3 billion, to record LE 73.9 billion (against LE billion in the year of comparison). That decrease was attributed to the price adjustments made for oil products at the beginning of the fiscal year, on the one hand, and to the fall in global oil prices on the other. Aiming to improve the quality of supply commodities and increase the

79 63 number of beneficiaries, in line with the State's policy that pays particular attention to low-income brackets, subsidies of supply commodities increased by LE 3.9 billion. Furthermore, spending on social benefits rose by LE 5.8 billion (the LE 4.0 billion increase in the government's contribution to pension funds, and the pickup in social solidarity pensions and other social benefits). This came in light of widening the social safety nets and expanding the number of beneficiaries in a manner that ensures social justice. Also, the costs of other miscellaneous subsidy items increased. Against this background, the cash deficit of the budget sector reached LE billion or 11.0 percent of GDP in FY 2014/2015. By adding the net acquisition of financial assets (LE 11.3 billion) to the cash deficit, the overall deficit would post LE billion or 11.5 percent of GDP (against LE billion or 12.2 percent of GDP a year earlier). The bulk of the overall deficit (88.9 percent or LE billion) was financed by banking sources. In addition, some miscellaneous repayments were made by other non-banking local sources. Summary of the Fiscal Operations of the Budget Sector (LE mn) Revenues 2013/ / / /15 Expenditures Actual Actual Total Revenues Total Expenditures Tax revenues Workers' wages and compensations Taxes on income & profits Purchases of goods & services Taxes on property Interest Taxes on goods & services Subsidies, grants & social benefits Taxes on international Subsidies trade (customs) Other taxes Grants Grants Social benefits Other revenues Others Property income Other expenditures Proceeds of selling goods & services Defense Financial investments Other Others Purchases of nonfinancial assets (investments)

80 64 3/3/2- Consolidated Fiscal Operations of the General Government When adding the fiscal operations of NIB and SIFs to those of the budget sector during FY 2014/2015, collected revenues would soar by LE 67.2 billion to LE billion or 21.9 percent of GDP. Similarly, public expenditures would rise by LE 97.5 billion to LE billion or 34.2 percent of GDP. (%) Cash Deficit & Overall Deficit of the General Government/GDP / / / /2015 Cash Deficit Overall Deficit Accordingly, the overall deficit of the consolidated fiscal operations of the general government reached LE billion or 13.0 percent of GDP. This deficit was mainly financed by local sources. Summary of the Consolidated Fiscal Operations of the General Government (LE mn) 2013/ /2015 Actual Total revenues Total expenditures Cash deficit Net acquisition of financial assets Overall deficit Financing sources Domestic finance Banking finance Non-Banking finance External borrowing Others Revaluation differences Net privatization proceeds Difference between treasury bills face value & present value Discrepancy

81 65 3/4 - Balance of Payments and External Trade 3/4/1- Balance of Payments During FY 2014/2015, Egypt's transactions with the external world unfolded an overall BOP surplus of US$ 3.7 billion (compared with just US$ 1.5 billion a year earlier). This is because the capital and financial account achieved a net inflow of US$ 17.6 billion (against US$ 5.3 billion). On the other hand, the current account deficit expanded to US$ 12.2 billion (from US$ 2.7 billion). The widening in the current account deficit was mainly a result of the increase in the trade deficit by some US$ 4.7 billion or 13.9 percent, to US$ 38.8 billion (against US$ 34.1 billion). This was due to the 15.5 percent retreat in merchandise exports to post as low as US$ 22.1 billion (against US$ 26.1 billion) and the slight increase in merchandise imports by only 1.1 percent, to US$ 60.8 billion. Add to this the decline in net unrequited current transfers to only US$ 21.9 billion (against US$ 30.4 billion), driven by the drop in net official transfers (cash and merchandise). The current account deficit could have been larger but for the noticeable rise in the services and income surplus to US$ 4.7 billion during the year (against US$ million). This, in turn, was traced to the increase in both services receipts by 24.9 percent to US$ 22.0 billion and services payments by only 3.9 percent to US$17.3 billion. Hence, the services and income receipts / services and income payments coverage ratio rose to percent (from percent). The capital and financial account resulted in a net inflow of US$ 17.6 billion (against US$ 5.3 billion). This primarily revealed the pickup in the net change in the liabilities of the CBE to the external world, registering a net inflow of US$ 5.5 billion (against US$ 1.9 billion), due to higher deposits placed at the CBE by some Arab countries. Moreover, the net inflow of FDI in Egypt increased to US$ 6.4 billion (from US$ 4.1 billion). Meanwhile, portfolio investment in Egypt reversed to a net outflow of US$ million (from a net inflow of US$ 1.2 billion). The following table shows the BOP main indicators according to GDP estimates, and a detailed review of the developments in the BOP items during FY 2014/2015 compared with the previous FY:

82 66 Balance of Payments Indicators (%) FY (%) 2013/2014* 2014/2015* Trade Balance: - Merchandise exports/gdp Oil exports/total exports Crude oil exports/oil exports Merchandise imports/gdp Non-oil imports/total imports Foodstuffs & cereals imports/non-oil imports Oil products imports/total imports Volume of external trade/gdp Coverage ratio of merchandise exports/merchandise imports Trade balance/gdp Services Balance: - Services balance/gdp Total services receipts/gdp, of which: Suez Canal receipts/gdp Tourism/GDP Transfers: - Net transfers/gdp Remittances of Egyptians working abroad/gdp Current Account/GDP Current receipts/gdp Current payments/gdp Current receipts/current payments Capital and Financial Account: - Net FDI in Egypt/GDP Overall Balance/GDP Months of merchandise and service imports covered by NIRs (end of June) * Preliminary

83 67 3/4/1/1- Current Account The current account deficit increased to US$ 12.2 billion during the year under review (against US$ 2.7 billion a year earlier). This was a combined result of the higher trade deficit by 13.9 percent and the lower net unrequited current transfers by 28.0 percent, on the one hand, and the rise in the services and income surplus to US$ 4.7 billion (against US$ million), on the other. Hereunder is a detailed review of the current account items: US$ bn Main Items of Current Account Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013/ /2015 Trade Balance Services & Income Balance Net Current Transfers First Trade Balance The trade deficit widened by 13.9 percent to US$ 38.8 billion (from US$ 34.1 billion), owing to the 15.5 percent fall in merchandise exports to US$ 22.1 billion (from US$ 26.1 billion). This decrease came as a result of lower oil exports by US$ 3.7 billion, in the wake of the falling global prices of crude oil by 28.7 percent, 50.1 percent and 43.1 percent, respectively, in the second, third and fourth quarters of FY 2014/2015, relative to the same periods a year earlier, notwithstanding the rise in the quantities exported of the said item in the year in question. It should be noted that Egypt's exports of crude oil made up 70.8 percent of its total oil exports, and 27.9 percent of total merchandise exports in the reporting year. Moreover, proceeds from non-oil exports rolled back by US$ 0.3 billion. On the other hand, merchandise imports slightly mounted by 1.1 percent, to record US$ 60.8 billion, mainly pronounced in non-oil imports, which increased by US$ 1.6 billion. Oil imports, in contrast, fell by US$ 0.9 billion.

84 68 Against this background, the coverage ratio of merchandise exports to merchandise imports retreated to 36.3 percent (from 43.4 percent). This will be thoroughly illustrated hereafter in the commodity structure of external trade. US$ bn Trade Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013/ /2015 Exports Imports Trade Balance Second Balance of Services and Income The services and income balance achieved a remarkable surplus of US$ 4.7 billion during the year (versus US$ million in the year of comparison), as the increase in services and income receipts outpaced that in services and income payments, as illustrated below: US$ bn Services & Income Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013/ /2015 Services & Income Receipts Services & Income Payments Services & Income Balance

85 69 A- Services and income receipts increased by 24.9 percent to US$ 22.0 billion (from US$ 17.6 billion), on the back of the rise in all items, as follows: Tourism revenues by 45.3 percent to US$ 7.4 billion (from US$ 5.1 billion), mainly due to the pickup in the number of tourist nights by 36.1 percent to 99.2 million nights (from 72.9 million). Transportation receipts to US$ 9.9 billion (from US$ 9.5 billion), due to the rise in the receipts of Egyptian navigation and aviation companies; charter flights and port services; and SUMED pipelines. Meanwhile, the Suez Canal receipts dropped by US$ 7.4 million to some US$ 5.4 billion, due mainly to the depreciation of SDRs versus the US dollar by 7.3 percent, notwithstanding the higher net tonnage by 6.5 percent. Other receipts to US$ 3.2 billion (from US$ 2.2 billion), as a result of the increases in the receipts of insurance services; construction and contracting services; costs of advertisements and renting of films; legal and consultation fees; and computer services and subscriptions for magazines and journals. (%) Percentage Change in Tourism & Suez Canal Receipts Q Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013/ /2015 Suez Canal Tourism Government receipts to US$ 1.4 billion (from US$ million), due to the rise in other government receipts, as well as the expenses of foreign embassies in Egypt. Investment income receipts to US$ million (from US$ million) because of increases in direct investment income (especially profits from branches abroad) and financial investment income (portfolio). Calculated by multiplying the number of tourist nights spent by non-residents (departures) by the average spending per tourist a night.

86 70 B- Services and income payments increased by 3.9 percent to US$ 17.3 billion (from US$ 16.7 billion), due to the rise in the following items: Other services payments to US$ 5.3 billion (from US$ 3.3 billion), on the back of the rise in the payments of construction and contracting services; legal and consultation fees; insurance service payments; payments to foreign experts; culture, recreation and film rental costs; and salaries and expenses of public and private sectors' employees. Travel payments by 9.6 percent to US$ 3.3 billion (against US$ 3.0 billion), ascribable to the increase in lottery pilgrimage fees; tourism and medical treatment costs; expenses of training and educational missions abroad; visa card payments; payments of tourism companies and hotels abroad; and payments of scientific researches. On the other hand, the following items decreased:- Investment income payments by 16.8 percent to stand at US$ 6.2 billion (against US$ 7.5 billion), because of the retreat in profit transfers of foreign petroleum companies operating in Egypt, the transfers of interest payments and dividends of bonds and securities, and interest on external debt. Transportation payments by 10.6 percent to US$ 1.5 billion (against US$ 1.7 billion), mirroring the drop in the amounts transferred by foreign navigation and aviation companies and those transferred as transportation services. Government expenditures by 20.5 percent to register US$ million (against US$ 1.1 billion), driven by the decline in salaries and expenses of government employees seconded abroad as well as other government expenditures. 12 US$ bn Transportation Balance Travel Balance Services Balances Investment Income Balance Government Services Balance 2013/ /2015 Other Services Balance

87 71 Third Net Unrequited Current Transfers Unrequited current transfers (net) declined by 28.0 percent to just US$ 21.9 billion (against US$ 30.4 billion). The decline stemmed primarily from the decrease in net official transfers to only US$ 2.7 billion (against US$ 11.9 billion), due to lower cash and commodity grants and donations received by the Egyptian government. By contrast, net private transfers moved up by 4.1 percent to US$ 19.2 billion (against US$ 18.4 billion), due to the 4.4 percent rise in remittances of Egyptians working abroad, particularly those from Saudi Arabia, Qatar and UAE. Remittances of Egyptians Working Abroad (US$bn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013/ /2015 (%) Remittances of Egyptians working Abroad Remittances as Percentage of GDP (right axis) The following chart illustrates the current receipts and payments during the reporting year and the previous fiscal year: US$ bn Current Receipts & Payments / / Merchandise Exports Merchandise Imports Services Receipts Services Payments Net Unrequitted Transfers

88 72 3/4/1/2- Capital and Financial Account Over FY 2014/2015, the capital and financial account achieved net inflows of US$ 17.6 billion (against US$ 5.3 billion), as a confluence of the following developments: 1- The rise in the net inflow of FDI in Egypt to post US$ 6.4 billion (against US$ 4.1 billion). This reflected the increase in the net inflows for both greenfield investments by 69.1 percent to US$ 3.8 billion (from US$ 2.2 billion) and for oil sector investments to US$ 1.7 billion (against US$ 1.6 billion). Also, investments for purchasing real estates scaled up to US$ million (compared with US$ million), primarily for "Beit al-watan" project US$ bn Net FDI in Egypt (net) Greenfield Investment Net FDI in Egypt Transfers for Buying real estates in Egypt by non-redisents Petroleum Sector Investments (net) 2013/ / Proceeds from selling local entities to nonresidents The following table shows the sectoral distribution of total FDI flows to Egypt during the years of review and comparison: Activity Sector FY 2013/2014 * Share (%) (US$ mn) 2014/2015 * Share (%) Total FDI Flows to Egypt Oil Manufacturing Agriculture Construction Services, of which Real Estate Finance Tourism Communications & IT Other services Undistributed * Preliminary

89 73 2- Portfolio investment in Egypt switched to a net outflow of US$ million (from a net inflow of US$ 1.2 billion). This was primarily due to the fact that the Egyptian authorities repaid US$ 2.5 billion of bonds (outflows) due in the reporting year. In addition, foreigners' subscription for Egyptian bonds (inflows) during the same year reached US$ million. Moreover, net foreigners' investments 2 on the EGX moved up, recording net purchases of US$ million (against US$ million). US$ bn Net Portfolio Investment in Egypt Net Portfolio Investment in Egypt Net foreigners' transactions in treasury bills Net foreigners' transactions in bonds 2013/ / Net foreigners' transactions in shares on EGX 3- Medium- and long-term loans and facilities unfolded net repayments of US$ million (against US$ 1.0 billion), as an outcome of the increase in total repayments to US$ 2.3 billion (from US$ 2.2 billion) and in total disbursements to US$ 1.5 billion (from US$ 1.2 billion). 4- Other assets and liabilities (the change in banks' foreign assets and liabilities; the CBE non-reserve foreign assets and foreign liabilities; and the counterpart to some items included in the current account) posted a net inflow of US$ 7.4 billion (against US$ million). This reflected mainly the rise in the net change in liabilities of the CBE to the external world to post a net inflow of US$ 5.5 billion during the year (against US$ 1.9 billion), mainly due to the higher deposits placed at the CBE by some Arab countries. 2 Excluding foreigners' investments that are equal to 10 percent or more of the capital of companies whose shares are traded on the EGX.

90 74 3/4/2- External Trade In FY 2014/15, the volume of Egypt's external trade declined 3.9 percent to US$ 82.9 billion (24.9 percent of GDP) compared with US$ 86.3 billion a year earlier. That came on the back of the decrease in merchandise exports by 15.5 percent to US$ 22.1 billion (or 6.6 percent of GDP) and the rise in merchandise imports by 1.1 percent to US$ 60.8 billion (or 18.3 percent of GDP). US$ bn Foreign Trade Developments Fiscal Year / / / / /2015 Exports Imports Trade Deficit Foreign Trade 3/4/2/1 - Distribution of Merchandise Exports Merchandise exports dropped US$ 4.1 billion, mainly due to the retreat in both oil exports (39.5 percent of total exports) by US$ 3.7 billion and non-oil exports (60.5 percent of the total) by US$ million. Relative Structures of Export Proceeds (by Merchandise Group) FY 2014/2015 Finished Goods 43.2% Fuel,Mineral Oils &Products 40.1% Semi-Finished Goods 8.9% Raw Materials 7.8%

91 75 Hereunder is a detailed review of merchandise exports by different classifications: 1- Export Proceeds by Degree of Processing Exports decreased by US$ 4.1 billion in the year under review, mainly due to the retreat of fuel and mineral oils (by US$ 3.7 billion); finished goods (by US$ million); and semi-finished goods (by US$ million). On the other hand, exports of raw materials increased by US$ million. US$ bn Fuel, Mineral Oils & Products Exports by Degree of precessing Fiscal year Finished Goods Semi-Finished Goods Raw Materials 2012/ / /2015 Below is a detailed review of exports by different merchandise groups: A- Fuel, Mineral Oils and Products Exports of this group decreased 29.7 percent to US$ 8.8 billion, reflecting the decline in the exports of crude oil (69.7 percent of the group's total exports) by 20.1 percent to US$ 6.2 billion, and of oil products (28.8 percent of the group's total exports) by 46.4 percent to US$ 2.5 billion. B- Semi-Finished Goods Exports of semi-finished goods moved down 12.0 percent to US$ 2.0 billion, due to the retreat in the exports of some goods, notably cast iron and semi-finished goods and rolled iron; cotton yarn; dyeing and tanning extracts; and animal and vegetable fats, greases and oils and products. C- Finished Goods Exports of finished goods decreased 3.1 percent to US$ 9.5 billion, reflecting the lower exports of some goods, mainly, fertilizers; miscellaneous edible preparations; iron and steel products; sugar and confectionaries; and soap, washing preparations and artificial waxes.

92 76 D) Raw Materials Exports of raw materials rose 16.1 percent, to US$ 1.7 billion, supported by the higher exports of some goods, mainly vegetables and plants (fresh, chilled or frozen); edible fruits and nuts; citrus fruits; and milk, dairy products, eggs and honey. 2- Sectoral Breakdown of Exports According to the sectoral distribution of exports, decreases were observed in the exports of: (i) investment sector by US$ 35.2 percent to US$ 2.6 billion, owing to its lower exports of oil products, (ii) public sector by 21.6 percent to US$ 7.9 billion, because of its lower exports of crude oil and oil products, and (iii) private sector by 4.1 percent to US$ 11.6 billion, due to its lower exports of oil products and fertilizers. US$ bn Fuel, Mine ral Oils & Products Exports by Economic Sectors FY 2014/2015 Raw Materials Semi-Finished Goods Finished Go ods Pub lic Private Inve stment Hereunder is a detailed review of the exports of different economic sectors: A- Public Sector (35.6 percent of total exports): Exports of the public sector scaled down by US$ 2.2 billion, to register US$ 7.9 billion, reflecting the drop in the exports of crude oil (78.5 percent of the sector's total exports) by US$ 1.6 billion, and of oil products (17.2 percent of the sector's total exports) by US$ million. The most salient non-oil exports of this sector were aluminum articles; organic and inorganic chemicals; cast iron, semi-finished products and rolled iron; and gold, pearls and precious stones. B- Investment Sector (11.6 percent of total exports): Export proceeds of the investment sector went down by US$ 1.4 billion to US$ 2.6 billion, driven by the US$ 1.3 billion drop in the exports of oil products (35.1 percent of the sector's total exports). Its key non-oil exports were cotton textiles; plastics and articles thereof; ready-made clothes; ceramic products; and cast iron, semi-finished products and rolled iron.

93 77 C- Private Sector (52.8 percent of total exports): Export proceeds of the private sector declined US$ million to US$ 11.6 billion, mainly reflecting the US$ million drop in the exports of oil products (2.5 percent of the sector's total exports). Its key non-oil exports were machinery and electric appliances; ready-made clothes; cotton textiles; gold, pearls and precious stones; and organic and inorganic chemicals. 3/4/2/2- Distribution of Merchandise Imports In FY 2014/2015, import payments stepped up by 1.1 percent to US$ 60.8 billion (from US$ 60.2 billion) as a dual effect of the rise in non-oil imports (79.7 percent of total imports) by 3.3 percent to US$ 48.5 billion, and the fall in oil imports (20.3 percent of total imports) by 6.7 percent to US$ 12.3 billion. Relative Structures of Imports proceeds (by Merchandise Group) FY 2014/2015 Intermediate Goods 27.1% Investment Goods 17.0% Raw Materials 14.0% Consumer Goods 23.6% Fuel,Mineral Oils & Products 16.8% Undistributed Imports 1.5% Hereunder is a detailed review of merchandise imports by different classifications: 1- Imports by Degree of Use Imports increased in the reporting year by US$ million, namely those of investment goods (by US$ 1.6 billion); consumer goods (by US$ 1.0 billion); and raw materials (by US$ million). On the other hand, imports of intermediate goods rolled back by US$ 1.4 billion and those of fuel, mineral oils and products by US$ 1.2 billion.

94 78 US$ bn Fuel, Mineral Oils & Products Imports by Degree of Use Fiscal year Raw Materials Intermediate Goods Investment Goods 2012/ / /2015 Consumer Goods Hereunder is a detailed review of imports by main merchandise groups: A- Investment Goods Imports of investment goods rose by 17.8 percent, to US$ 10.4 billion, thanks to the surge in the imports of some goods, mainly motors, generators, transformers and parts thereof; electrical appliances for telephone and telegraph; optical appliances used in cinema, medicine & surgery; and cranes, bulldozers and parts thereof. B- Consumer Goods Imports of this group increased by 7.8 percent to US$ 14.4 billion, driven by the pickup in the imports of: - Durable consumer goods by 21.7 percent, to US$ 4.4 billion, on the back of the rise in the imports of some goods; such as passenger cars; televisions and parts thereof and computer monitors; and household electric appliances. - Non-durable consumer goods by 2.7 percent to US$ 10.0 billion, thanks to the higher imports of some goods, mainly pharmaceuticals; soap, detergents and artificial waxes; livestock animals; lentils; and refined sugar and products. C- Raw Materials Imports of raw materials scaled up by 6.7 percent, to US$ 8.5 billion, on account of the higher imports of crude oil (29.6 percent of the group's total imports) by 20.8 percent, and some other goods, especially oil seeds and oleaginous fruits; metal ores, and tobacco.

95 79 D- Fuel, Mineral Oils and Products Imports of this group dipped 10.6 percent, to US$ 10.2 billion, as a consequence of the 11.9 percent decrease in oil products (96.5 percent of the group's total imports). E- Intermediate Goods Imports of intermediate goods dropped 8.0 percent to US$ 16.5 billion, on the back of lower imports of some goods, mainly animal and vegetable fats; greases and oils and products; iron and steel products; raw sugar; articles of base metals; aluminum articles; and copper and articles thereof. 2- Sectoral Distribution of Merchandise Imports Import payments increased during the year under review supported by the higher imports of the investment and public sectors by 14.8 percent and 3.7 percent, respectively; while imports of the private sector declined by 1.5 percent. US$ bn 16.0 Imports by Economic Sector FY 2014/ Fuel, Mineral Oils & Products Raw Materials Intermediate Goods Investment Goods Consumer Goods Public Private Investment A- Investment Sector (8.6 percent of total imports): Imports of the investment sector rose by US$ million, to US$ 5.2 billion, as a result of the US$ million rise in the imports of televisions and parts thereof and computer monitors. The major imports were organic and inorganic chemicals; iron and steel products; car accessories and spare parts; oil seeds and oleaginous fruits; pharmaceuticals; plastics and articles thereof; and pumps, fans and parts thereof. B- Private Sector (64.9 percent of total imports): Imports of the private sector edged down by US$ million, to US$ 39.5 billion, due to the US$ 1.4 billion drop in the imports of oil products. The main imports were iron and steel products; pharmaceuticals; plastics and articles thereof; car accessories and spare parts; organic and inorganic chemicals; passenger cars; and wood and its products.

96 80 C- Public Sector (26.5 percent of total imports): Imports of the public sector increased US$ million, to US$ 16.2 billion, mainly reflecting the rise in the imports of oil products (54.0 percent of total imports) by US$ million; and of crude oil (12.8 percent of total imports) by US$ million. Its key non-oil imports were wheat; motors, generators, transformers and parts thereof; pharmaceuticals; cranes and bulldozers and parts thereof. 3/4/2/3 - Geographical Distribution of External Trade According to the geographical distribution of merchandise exports, the EU countries ranked first (33.7 percent of total exports), followed by the Arab countries (25.2 percent), then the non-arab Asian countries (14.0 percent). At the level of countries, Italy came on top, followed by the USA, the UAE, UK, India, Saudi Arabia, and France (with a combined share of 51.0 percent of total exports). US$ bn EU Countries Exports by Geographical Distribution Fiscal year Arab Asian Countries Countries (Non-Arab) USA Australia & Other Countries and Regions Other European Countries 2013/ /2015 Russian Fed. & C.I.S African Countries (Non-Arab) Turning to imports, the EU countries came in the forefront (29.2 percent), followed by the Arab countries (22.5 percent), and the non-arab Asian countries (21.8 percent). At the countries level (in terms of the main trade partner), China was the key exporter, followed by Saudi Arabia, UAE, USA, Germany, France, Kuwait, Turkey, Italy, and Switzerland (with a combined share of 51.9 percent of total imports).

97 81 US$ bn EU Countries Imports by Geographical Distribution Fiscal year Arab Countries Asian Countries (Non-Arab) Other European Countries Australia & Other Countries and Regions USA Russian Federation & C.I.S African Countries (Non-Arab) 2013/ /2015 Hereunder is a detailed review of external trade by economic groups: A- EU Countries (30.4 percent of total external trade) Exports to the EU countries decreased 26.6 percent to US$ 7.4 billion (from US$ 10.1 billion a year earlier). About 31.7 percent of total exports went to Italy, followed by the UK (20.2 percent) and France (11.5 percent), then Germany (10.0 percent). On the other hand, imports from the EU countries increased 9.6 percent to US$ 17.8 billion (against US$ 16.2 billion). Nearly 17.7 percent of total imports came from Germany, followed by France (13.7 percent), Italy (11.5 percent), the UK (10.2 percent), and Spain (6.8 percent). B- Arab Countries (23.2 percent of total external trade) Exports to Arab countries increased 1.6 percent to US$ 5.6 billion (against US$ 5.5 billion). UAE ranked first ( with a share of 31.6 percent of total exports), followed by Saudi Arabia (19.5 percent), Jordan (7.1 percent), and Algeria (6.5 percent). However, imports from the Arab countries declined 18.0 percent to US$ 13.7 billion (against US$ 16.7 billion). Saudi Arabia topped the list, accounting for 31.6 percent, followed by the UAE (29.2 percent), and Kuwait (17.0 percent). C- Non-Arab Asian Countries (19.8 percent of total external trade) Exports to the non-arab Asian countries retreated 11.3 percent to US$ 3.1 billion (compared with US$ 3.5 billion). India ranked first, obtaining 48.3 percent of total exports to this group, followed by China (23.8 percent), Japan (6.0 percent) and Hong Kong (5.3 percent).

98 82 Meanwhile, imports from these countries rose by 9.2 percent to US$ 13.3 billion (against US$ 12.2 billion). China ranked first (39.1 percent), then India (12.8 percent), South Korea (12.3 percent) and Hong Kong (7.5 percent). D- USA (7.4 percent of total external trade) Exports to the USA scaled down 12.1 percent to US$ 2.2 billion (against US$ 2.5 billion). Also, imports from the USA retreated 6.6 percent, to US$ 3.9 billion (against US$ 4.2 billion). E- Other European Countries (6.9 percent of total external trade) Exports to this group moved down 7.5 percent to US$ 1.3 billion (against US$ 1.4 billion). Turkey came first, making up 65.4 percent of the total, followed by Switzerland (32.1 percent). On the other hand, imports from these countries edged up 4.3 percent to US$ 4.5 billion (from US$ 4.3 billion). Turkey was the major exporter with a share of 49.6 percent, while Switzerland was the runner up (44.0 percent). F- Australia, and Other Countries and Regions (6.9 percent of total external trade) Exports to this group scaled down 40.3 percent to US$ 1.5 billion (from US$ 2.5 billion). Canada came first, obtaining 23.4 percent, then Brazil (2.8 percent) and Australia (1.7 percent). Conversely, imports from this group rose 19.4 percent, to US$ 4.2 billion (from US$ 3.6 billion). Brazil was the main exporter with a share of 27.4 percent, then Australia (8.6 percent), and Argentina (7.8 percent). G- Russian Federation and the Commonwealth of Independent States (4.2 percent of total external trade) Exports to this group went up percent to US$ million (from US$ million). Russia came in the forefront, receiving 45.5 percent of the total. Similarly, imports from this group increased 13.1 percent, to US$ 3.0 billion (from US$ 2.6 billion). About 63.1 percent of imports came from Russia.

99 83 H- Non-Arab African Countries (1.2 percent of total external trade) Exports to this group increased 4.9 percent to US$ million (against US$ million. Kenya was the chief importer with a share of 21.4 percent, followed by Ethiopia (19.0 percent), and South Africa (12.2 percent). Likewise, imports from this group hiked 11.2 percent to US$ million (against US$ million). Kenya took the lead with a share of 37.0 percent, then South Africa (11.2 percent), and Zambia (8.1percent). 3/4/2/4 - Breakdown of External Trade by Main Commodity Breakdown of external trade by main commodity (in terms of exports) shows that crude oil and products ranked first, constituting 39.5 percent of the total, followed by raw cotton (9.1 percent), and chemicals (8.4 percent). US$ bn 15.0 Exports by Main Commodity Fiscal year Oil Fo odstu ffs (e xclu ding cereals) Cotto n Cereals Chem icals Electric applia nces & parts Base metals Vehicles, ca rs & other means of tra nsportation 2013/ /2015 In terms of imports, crude oil and products topped the list with a share of 20.3 percent, followed by machinery, electric appliances and parts thereof (11.3 percent); and vehicles, cars and other means of transportation (9.7 percent). US$ bn Imports by Main Commodity Fiscal year Oil Foodstuffs (excluding cereals) Cotton Cereals Chemicals Electric appliances & parts Base metals Vehicles, cars & other means of transportation 2013/ /2015

100 84 Hereunder is a detailed review of main merchandise balances: A -Crude Oil and Products The merchandise balance of crude oil and products registered a deficit of US$ 3.7 billion in the reporting year (compared with US$ million a year earlier), primarily due to lower exports of crude oil and oil products (see the following table). Oil Balance (US$ mn) FY Relative Crude Oil and Products Change Importance 2013/2014 * 2014/2015 * % % Total Oil Exports (30.1) 100 Crude oil (20.1) 70.8 Oil products (45.1) 25.8 Natural gas (54.5) 3.4 Total Oil Imports (6.7) 100 Crude oil Oil products (13.6) 77.1 Natural gas Oil Balance (794.4) (3653.0) Provisional. Including bunker and jet fuel B) Machinery, Appliances, Electric Equipment and Parts: The merchandise balance of this group registered a deficit of US$ 5.7 billion (against US$ 4.8 billion), due the following developments: - Exports of this group (5.5 percent of total exports) rose by 41.6 percent to US$ 1.2 billion, owing to higher exports of household electric-motor appliances; TV and transmitter and receiver devices of telephones, telegraphs and radios; air pumps and liquid compressors; and electric heaters. - Imports of this group (11.3 percent of total imports) increased by 21.7 percent to US$ 6.9 billion, supported by the rise in the imports of motors, generators, transformers and parts thereof; TV and transmitter and receiver devices of telephones, telegraphs and radios; household electric-motor appliances; and apparatus for making and breaking electrical circuits.

101 C- Vehicles, Cars and Other Means of Transportation 85 The merchandise balance of this group registered a deficit of US$ 5.6 billion (against US$ 4.2 billion), as a confluence of the following developments: - Exports of this group (1.2 percent of total exports) scaled down by 13.0 percent, to US$ million. The drop was traceable to the decline in the exports of car accessories, batteries, and spare parts; cranes, bulldozers, and parts thereof; ships, boats and floating structures; and railway and tramway locomotives or rolling stock equipment and parts thereof. - Imports of this group (9.7 percent of total imports) increased by 31.2 percent, reaching US$ 5.9 billion. Behind this rise were the higher imports of cars and vehicles for passengers and goods; ships, boats and floating structures; cranes, bulldozers, and parts thereof; and motorcycles and bicycles. D- Cereals The merchandise balance of cereals recorded a deficit of US 4.4 billion (against US$ 4.5 billion), on the back of the following developments: - Exports of cereals (1.6 percent of total exports) hiked by 67.3 percent, to US$ million. This could be explained by the higher exports of rice; wheat; oil seeds and oleaginous fruits and plants for manufacturing. - Imports of this group (7.9 percent of total imports) also rose by 1.9 percent, to US$ 4.8 billion, in response to the pickup in the imports of oil seeds and oleaginous fruits and plants for manufacturing; maize; and lentils. E- Chemicals: The chemicals balance unfolded a deficit of US$ 3.8 billion (against US$ 2.7 billion). This was ascribed to the following factors: - Exports of chemicals (8.4 percent of total exports) dropped 18.3 percent to US$ 1.9 billion, owing to the lower exports of fertilizers; soap, detergents and artificial waxes; dyeing and tanning extracts and printing ink; and pharmaceuticals. - Imports of this group (9.2 percent of total imports) moved up 12.0 percent to US$ 5.6 billion. This was ascribed to the rise in the imports of pharmaceuticals; essential oils, perfumers and cosmetic preparations; soap, detergents and artificial waxes; and fertilizers.

102 86 F- Base Metals and Products The merchandise balance of this group ran a deficit of US$ 3.4 billion, (against US$ 3.6 billion), because of the following developments: - Exports of this group (5.5 percent of total exports) declined 20.8 percent, to US$ 1.2 billion. That decline was ascribed to the lower exports of iron ore; and iron and steel and their products. - Imports of this group (7.7 percent of total imports) fell back 9.2 percent, to US$ 4.7 billion, due to lower imports of iron ore; iron and steel and their products; and aluminum ore and its articles. G- Foodstuffs (excluding cereals) The merchandise balance of this group recorded a deficit of US$ 2.9 billion (against US$ 3.8 billion), due to the following factors: - Exports of foodstuffs (8.0 percent of total exports) moved up by 9.5 percent, to US$ 1.8 billion. The surge was attributed to the higher exports of vegetables and plants (fresh or chilled or frozen); edible fruits and nuts; and milk, dairy products and eggs. - Imports of this group (7.7 percent of total imports) decreased by 13.2 percent, to US$ 4.7 billion, due to the lower imports of animal and vegetable fats, greases and oils and products; raw sugar and confectionaries; residues of foodstuff industries and animal fodder; milk, dairy products and eggs; and meat and preparations thereof. H- Raw Cotton and Its Products and Other Textile Materials The merchandise balance of this group posted a deficit of US$ million (against US$ million, as both exports and imports of this group declined by 5.5 percent each. (see the following table) FY 2013/ /2015 (US$ mn) Relative Importance % Cotton and Products Change % Merchandise exports; of which (5.5) Ready-made clothes Cotton textiles (3.3) 36.8 Carpets and other floor coverings Merchandise Imports; of which (5.5) Ready-made clothes (25.2) 30.5 Cotton textiles Synthetic fibers Cotton Balance (968.0) (913.7) 5.6

103 87 3/5- Non-Banking Financial Services Sector 3/5/1- Stock Market * Regarding the performance of the Egyptian Exchange (EGX) in FY 2014/2015, its benchmark index (EGX 30) rose by 2.6 percent, to points at end of June 2015 (against points at end of June 2014). By contrast, EGX 20 Capped decreased by 13.4 percent, to points. Similarly, EGX 70 and EGX 100 fell by 24.8 percent and 8.9 percent, in order, to points and points at end of June The NILEX index, which reflects the activity of small and medium enterprises listed on the Nile Stock Exchange, declined by 14.0 percent, to points (against points). Point The Benchmark EGX 30 Index As for the primary market, the number of new issues approved by EFSA in the year under review reached 3898, with a total value of LE 56.0 billion (against 3161 issues, totaling LE 43.5 billion in the previous FY). Of this figure, issues for new businesses reached 2969 in number (76.2 percent of total issues), at a value of LE 13.1 billion. Meanwhile, the number of issues for capital increases of existing companies stood at 929, totaling LE 42.9 billion (76.7 percent of the total value of issues). The listing activity on the EGX showed that the number of listed companies increased to 221 at end of June 2015 (from 213 at end of June 2014). Moreover, the nominal capital of these companies rose by 9.5 percent to LE billion (from LE billion). Also on the rise was their market capitalization which moved up by 1.6 percent to LE billion at end of June 2015 (20.2 percent of GDP in FY 2014/2015), against LE billion at end of June 2014, on the back of the rise in the prices of most shares traded on the EGX. * Source: EFSA and EGX's monthly reports.

104 88 The value of issued and listed bonds surged by LE billion or 34.8 percent in FY 2014/2015, ending the year at LE billion (against LE billion at end of June 2014). This was attributed to the rise of LE billion in the value of Egyptian treasury bonds (primary dealers), to LE billion or 98.4 percent of the total value of listed bonds at end of June Meanwhile, corporate bonds decreased by LE 0.9 billion. Trading in the secondary market (including NILEX and ETFs) showed that the number of transactions fell by 1028 thousand or 15.1 percent compared with the preceding year, to stand at 5782 thousand. Also, the number of traded securities (shares and bonds) dropped by 11.8 billion papers or 22.8 percent, to 40.0 billion papers. Their value, on the other hand, reached LE billion with a minor change from the year of comparison. Of this figure, LE billion were the value of listed shares, bonds and mutual funds' certificates, LE 15.6 billion were the value of unlisted shares, bonds and mutual funds' certificates, and LE 0.6 billion were the value of NILEX traded securities. Share transactions accounted for the bulk of trading on the EGX, representing 72.5 percent of the total trading in the year under review (against 79.3 percent in the previous year). Trading in bonds made up 27.5 percent of the total (against 20.7 percent). Turning to the market of small and medium enterprises (NILEX), the number of listed companies reached 33, while the market capitalization of their shares amounted to LE 1.2 billion at end of June During the reporting year, the number of traded securities reached million papers, through 83.0 thousand transactions, at a total value of LE 0.6 billion. Trading in the Exchange Traded Funds (ETFs) which track EGX 30 index started on 14 January The number of their traded securities reached 6.6 million papers, with a total value of LE 68.9 million during the year in question.

105 89 Trading in Securities During FY 2011/ / / /2015 No. of Transactions (000) A- Shares, bonds and mutual funds' certificates (listed) B- Shares, bonds and mutual funds' certificates (unlisted) C- Small and medium enterprises market (NILEX) * D- Exchange Traded Funds (ETFs) ** No. of Traded Securities (mn) A- Shares, bonds and mutual funds' certificates (listed) B- Shares, bonds and mutual funds' certificates (unlisted) C- Small and medium enterprises market (NILEX) * D- Exchange Traded Funds (ETFs) ** Value of Transactions (LE mn) A- Shares, bonds and mutual funds' certificates (listed) B- Shares, bonds and mutual funds' certificates (unlisted) C- Small and medium enterprises market (NILEX) * D- Exchange Traded Funds (ETFs) ** Source: EFSA, Monthly Reports of the EGX. * Trading on NILEX started on June 3, ** Trading in ETFs started on January 14, Foreigners' transactions on the EGX moved up by 20.5 percent during the year under review, compared with the corresponding year, to stand at LE billion (against LE 90.0 billion). Their dealings resulted in net purchases of LE 4.2 billion (against LE 4.0 billion).

106 90 LE bn Foreign Investors' Transactions during FY. Purchases Sales Net / /2015 Egyptians' trading on the EGX accounted for 67.5 percent of total transactions in FY 2014/2015. On the other hand, dealings of non-arab foreigners represented 25.6 percent of the total, while those of Arab investors recorded 6.9 percent. Ratios of Egyptian, Foreign & Arab Investors Transactions on the Egyptian Exchange during FY 2014/2015 Foreigners (Excl. Arabs) 25.6% Arabs 6.9% Egyptians 67.5%