CBE stress tests show banking sector resilient to severe shocks

The Central Bank of Egypt (CBE) has confirmed that it and the Financial Regulatory Authority (FRA) continuously develop and update stress tests to ensure they reflect existing and emerging risks, strengthen their ability to assess financial institutions’ resilience to shocks, and identify the channels through which such shocks could spread and their potential implications for financial stability. In its recently published Financial Stability Report, the CBE explained that stress tests provide a forward-looking assessment of financial institutions’ capacity to absorb the effects of a wide range of low-probability external or domestic shocks through the simulation of hypothetical scenarios.

These assessments take into account rapid developments in the regional and global economic and financial environment, heightened uncertainty, and multiple sources of risk that could affect financial stability, including escalating geopolitical tensions, climate-related risks, and cyber risks. Such developments could adversely affect economic activity and financial markets, with consequences for financial institutions’ capital adequacy, liquidity, asset quality, and profitability indicators. The CBE said scenario-based stress tests had been conducted on the banking sector to assess its exposure to potential systemic risks under two scenarios: changes in macroeconomic and financial conditions, and climate change. The tests measured the potential impact on the capital adequacy of the 10 largest banks, which accounted for approximately 80% of total banking sector assets in March 2026, as well as the impact on local- and foreign-currency liquidity across the banking sector. Three levels of severity were applied to the shocks under each scenario. According to the CBE, the hypothetical…