Why Don't Banks Lend to Egypt's Private Sector?

Publication:
Why Don't Banks Lend to Egypt's Private Sector?

dc.contributor.author	Hurlin, Christophe
dc.contributor.author	Herrera, Santiago
dc.contributor.author	Zaki, Chahir
dc.date.accessioned	2013-05-20T16:24:04Z
dc.date.available	2013-05-20T16:24:04Z
dc.date.issued	2013-04-09
dc.description.abstract	Bank credit to Egypt's private sector decreased over the last decade, despite a recapitalized banking system and high rates of economic growth. Recent macro-economic turmoil has reinforced the trend. This paper explains the decrease based on credit supply and demand considerations by 1) presenting stylized facts regarding the evolution of the banks' sources and fund use in 2005 to 2011, noting two different cycles of external capital flows, and 2) estimating private credit supply and demand equations using quarterly data from 1998 to 2011. The system of simultaneous equations is estimated both assuming continuous market clearing and allowing for transitory price rigidity entailing market disequilibrium. The main results are robust to the market clearing assumption. During the global financial crisis, a significant capital outflow stalled bank deposit growth, which in turn affected the private sector's credit supply. At the same time, the banking sector increased credit to the government. Both factors reduced the private sector's credit supply during the period under study. After the trough of the global crisis, capital flowed back into Egypt and deposit growth stopped being a drag on the supply side, but bank credit to the government continued to drive the decrease in the private sector's credit supply. Beginning in the final quarter of 2010, capital flows reversed in tandem with global capital markets, and in January 2011 the popular uprising that ousted President Hosni Mubarak added an Egypt-specific shock that accentuated the outflow. Lending capacity dragged again, accounting for 10% of the estimated fall in private credit. Credit to the government continued to drain resources, accounting for 70–80% of the estimated total decline. Reduced economic activity contributed around 15% of the total fall in credit. The relative importance of these factors contrasts with that of the preceding capital inflow period, when credit to the government accounted for 54% of the estimated fall, while demand factors accounted for a similar percentage.	en
dc.identifier.citation	Economic Modelling
dc.identifier.doi	10.1596/13458
dc.identifier.issn	0264-9993
dc.identifier.uri	https://hdl.handle.net/10986/13458
dc.language.iso	en_US
dc.publisher	Elsevier
dc.relation.ispartofseries	Economic Modelling;33
dc.rights	CC BY-NC-ND 3.0 IGO
dc.rights.holder	World Bank
dc.rights.uri	http://creativecommons.org/licenses/by-nc-nd/3.0/igo/
dc.subject	private credit
dc.subject	supply and demand system
dc.subject	disequilibrium model
dc.title	Why Don't Banks Lend to Egypt's Private Sector?	en
dc.type	Journal Article	en
dc.type	Article de journal	fr
dc.type	Artículo de revista	es
dspace.entity.type	Publication
okr.date.disclosure	2013-05-20
okr.date.doiregistration	2025-05-06T11:12:32.924263Z
okr.doctype	Publications & Research::Journal Article
okr.doctype	Publications & Research
okr.externalcontent	External Content
okr.globalpractice	Finance and Markets
okr.journal.nbpages	347-356
okr.language.supported	en
okr.peerreview	Academic Peer Review
okr.region.country	Egypt, Arab Republic of
okr.relation.associatedurl	http://dx.doi.org/10.1016/j.econmod.2013.04.003
okr.relation.associatedurl	https://openknowledge.worldbank.org/handle/10986/9308
okr.topic	Finance and Financial Sector Development::Banks & Banking Reform
okr.topic	Finance and Financial Sector Development::Capital Markets and Capital Flows
okr.topic	Finance and Financial Sector Development::Finance and Development
okr.volume	33
relation.isAuthorOfPublication	b8257292-3111-5480-90dd-5aeb70e52589
relation.isAuthorOfPublication	1dfab836-9f99-578a-8220-2946e712ebf8
relation.isAuthorOfPublication.latestForDiscovery	1dfab836-9f99-578a-8220-2946e712ebf8