01:40 PM
Friday 02 September 2022
I wrote – Manal Al-Masry:
Bankers, whom Masrawy spoke to, attributed the Central Bank’s refraining from re-issuing a high-yield certificate of 18% following the high rate of inflation (the pace of price increases) to the lack of economic feasibility from it.
Bankers said that the current inflation in Egypt is mostly imported inflation due to the rise in commodity prices globally, and not as a result of the presence of high liquidity in the market, pointing out that offering a high-return certificate increases the burden of the budget deficit and erodes the profitability of banks.
The Central Bank resorts to raising the interest rate and using Al-Ahly and Egypt banks – as they are arms in implementing monetary policy – to issue high-return certificates to absorb the consequences of inflation.
The Central Bank resorted to this option following the liberalization of the exchange rate in November 2016, the pandemic of the Corona virus 2020, and finally this year to face the deteriorating economic conditions following the Russian-Ukrainian conflict.
Last March, the two banks issued a certificate with an interest rate of 18% for one year, coinciding with the Central Bank raising interest by 1% in an exceptional meeting of the Monetary Policy Committee for the first time in 5 years following the outbreak of the Russian-Ukrainian war at the end of February, as well as the devaluation of the pound by 16%.
Al-Ahly and Egypt banks suspended the certificate of 18% at the end of last May, following it collected 750 billion pounds, the target proceeds, 71 days following its issuance.
Is the certificate renewed?
Sahar al-Damaty, a banking expert, told Masrawy that banks’ offering certificates at a higher interest rate than the current list will have a negative impact on direct investment and banks’ profits.
She explained that high-return certificates with interest of up to 20% or 18% weaken the movement of direct investment and will not be feasible in absorbing liquidity, especially since inflation is imported from abroad due to high prices globally.
According to a member of the board of directors of a private bank, he told Masrawy, that banks do not need to issue a certificate with a high interest rate of more than 14% during the coming period, and it is difficult to return to offering a higher certificate once more, especially because the increase in inflation is more related to a supply imbalance and a lack of supply chains at the level of The world is not due to high liquidity.
He explained that high-yield certificates cause an increase in the interest rate on treasury bills and bonds, which is reflected in an increase in the burden of the state’s public budget deficit.
Al-Ahly Bank and Egypt had offered a 15% certificate, with a year’s maturity, with a monthly return, in March 2020, and it was suspended 6 months following it was issued in September of the same year, following collecting a proceeds of 400 billion pounds.
Before that, Al-Ahly Bank and Egypt issued in November 2016 two certificates with an interest rate of 20% with terms of one and a half years, and another triple certificate with a return of 16%, and it was suspended on the first of February 2018, 15 months following its issuance.