05:32 PM
Friday 23 September 2022
I wrote – Manal Al-Masry:
Bankers, whom Masrawy spoke to, expected that banks would seek to create innovative, non-traditional savings vessels that are not subject to mandatory reserves, such as savings certificates from 3 years or more, during the coming period, in order to enhance competition among the banking system.
According to the bankers, savings certificates from 3 years and above are not subject to the mandatory cash reserve, while short-term deposits will be subject to it.
Banks offering certificates of less than 3 years mean that they will bear a higher cost, as if the bank attracts deposits of one million pounds from them, it will have to deposit 180,000 pounds of it with the Central Bank.
The Central Bank of Egypt decided to raise the mandatory cash reserve ratio of deposits on banks to 18% instead of 14%, which accompanied its decision to fix interest rates for the third time in a row.
Maged Fahmy, former head of the Industrial Development Bank, said that the decision will prompt banks to adjust the interest structure to reduce the burden of the cost of funds and to rely on triple savings certificates to the top, as they are not subject to mandatory reserves.
He explained that the decision will not have a significant impact on banks, as most of the deposits of individuals are concentrated in certificates, and the least percentage is invested in short-term deposits and most of their clients are from the government or the private sector, which reduces the pressures of increasing the mandatory reserve on the profitability of the banking system.
Sahar El-Damaty, former Vice President of Banque Misr, said that increasing the cash reserve on banks will contribute to creating competition among them to issue saving certificates with a distinctive return, rather than focusing on short-term vessels.
She explained that banks may resort to reducing the interest rate on short-term deposits to reduce the cost of operating funds as a result of raising the mandatory reserve.
A member of the board of directors of a private bank, who preferred not to be named, said that the items may seek to create innovative non-traditional savings vessels that are not subject to mandatory reserves, such as certificates.
He added that savings certificates with terms of 3 years and above will not be affected by the decision to increase the mandatory reserve on banks, in a way that does not lead to any pressure on the banking system from the decision.
But short-term deposits from one day to less than 3 years will be subject to the mandatory reserve, but their impact may be very weak on banks, as most of the deposit portfolio is concentrated in medium and long-term savings pools, according to the member of the Board of Directors.
He added that the bank’s decision to increase the mandatory reserve is subject to adjustment, but after the improvement of the global geopolitical situation that affected the world and had its effects reflected on Egypt.
According to a central bank official, who said yesterday that the value of deposits rose by a trillion pounds in the period (January-August 2022) to record the total deposits of the banking sector at 6.5 trillion pounds at the end of last August, which contributed to increasing liquidity – which is essentially high – with banks.