2023-07-28 04:57:16
Banque Misr and the National Bank of Egypt, the two largest government banks in Egypt, announced, on Tuesday, the issuance of two dollar investment certificates for three years, the first with an annual return of 7 percent, and the second with an annual return of 9 percent, to be spent cumulatively at a rate of 27 percent in advance in local currency, and the Arab African International Bank joined them in Egypt, on Wednesday, and issued a three-year savings certificate with a cumulative return of 40 percent, to be spent in advance.
This competition between banks, according to economic analysts, aims to support their deposit portfolio, whether in dollars or local currency. The Egyptian government also aims to withdraw dollar liquidity from the black markets and control inflation, which has reached its highest rate in five years.
The issuance of dollar certificates by Egyptian banks raised questions about the possibility of their success in achieving their goal of compensating for the dollar shortage and controlling the black market. It also created a societal debate about how to pay these high returns in light of the crisis that the Egyptian economy is suffering from.
Doubts about the possibility of paying returns
The financial adviser and professor of economics at the British Loughborough University, Sherif Suleiman Abul-Magd, told Al-Hurra that granting an annual return on dollar deposits in banks of 7 percent is the highest in the world, as no country gives such a figure.
He added that, for example, with regard to the three-year certificate with an annual return of 7 percent, the depositor is supposed to recover his certificate in dollars, with an increase of 21 percent, meaning that in the case of a deposit of $10,000, the person is expected to recover $12,000, and whoever deposits a million A dollar will be received by one million and 20 thousand dollars.
And the financial expert continued, “The question currently being raised strongly is: Where will these revenues be paid from, in light of the economic crisis Egypt is suffering represented by the rise in domestic and foreign debts against the gross domestic product, in addition to the depreciation of the local currency, the rise of the dollar on the black market, and the decline in investment.” The foreigner?
Abul-Magd questioned the Egyptian government’s ability to pay these revenues on time in dollars, given the economic situation in Egypt and the amount of accumulated debts.
The economics professor spoke about the reason for his skepticism about Egypt’s ability to fulfill its obligations to its customers in banks, saying that the decision to resort to these certificates means that the liquidity crisis in Egypt has become very deep, and this indicates that the Egyptian government is suffering from difficulty in attracting cash flows or financing, whether From regional partners or from foreign investments, in addition to the failure of the sale of government assets.
He added that Egypt, by issuing certificates, aims to attract hot money, which represents a greater burden on the Egyptian economy, because Egypt has a declining deficit in net foreign assets, which reached, during last May, $24.4 billion.
The economist pointed out that net foreign assets are the difference between the assets and liabilities owned by banks and the central bank in foreign currency for the benefit of non-residents, and the deficit reflects a structural imbalance in the banking sector’s resources and liabilities in foreign currency.
He explained that as a result of this deficit, four of the largest Egyptian banks were subjected to a downgrade of their credit rating, after downgrading Egypt’s rating from stable to negative.
He said that the risk of downgrading banks is that it means that they will fail to pay their obligations in terms of deposits of people and loans that they are committed to repaying, and this will cause investors to lose confidence in buying bonds or treasury bills when they realize that you do not have sufficient liquidity.
Another reason prompts Abul-Majd to question the inability of Egyptian banks to pay their obligations in dollars, which is that the total public debt in relation to the GDP rose to 97.7 percent, and this means that the Egyptian state is unable to face crises and challenges and may falter in repaying debts. He explained that the GDP is an indicator of the strength of the economy, which is viewed by investors and international bodies.
Abul-Magd talked about another concern regarding the certificate with an annual return of 9 percent, which is spent cumulatively at 27 percent in advance in the local currency, explaining that this largely means that the government will print more pounds, and this means an increase in inflation and thus a decrease in the value of the pound.
In his question about how Egyptian banks pay the benefits of dollar certificates, the head of the Federation of Egyptian Banks and the head of Banque Misr, Mohamed El-Atreby, said in a telephone interview on “On TV” channel, on Tuesday, that the banks are investing their dollar deposits with other companies that have currency sources. Therefore, the proceeds of these investments will be in dollars, explaining that no bank in Egypt has ever failed to pay its customers’ dollar deposits.
Inflation in Egypt jumped, on an annual basis, last June to 35.7 percent from 32.7 percent in May, under pressure from the government’s hike in diesel prices, the scarcity of hard currency needed for imports, and the return of goods to the ports, according to Archyde.com.
Data from the Central Bank of Egypt regarding the performance of the balance of payments, released on Tuesday, showed that remittances from Egyptians abroad decreased to $17.5 billion between July and March of the current fiscal year, compared to $23.6 billion in the same period last year.
Last June, Central Bank data showed that payments owed by Egypt include $2.49 billion of short-term debt in June, while in the second half of 2023 they include $3.86 billion of short-term debt and $11.38 billion of long-term debt.
Expectations of a new float coming
For his part, Karim Khairy, a banking expert and professor of economics at the University of Dortmund in Germany, told Al-Hurra that the issuance of dollar certificates by Egyptian banks with interest of up to 7 and 9 percent on the dollar is “suicide and evidence of the size of the economic crisis,” stressing that this means a new devaluation of the pound. in the coming period.
He added that the Egyptian banks’ decision to issue certificates with a cumulative return that is disbursed in advance comes one week before the fifth meeting, this year, of the Monetary Policy Committee in Egypt to discuss interest rates, at a time when the US Federal Reserve raised interest, Wednesday, by 25 percentage points to a range of 5.25 percent. percent -5.5 percent.
He added that the government is trying to quickly attract the largest amount of dollars from the market before the new flotation of the pound occurs, to avoid the risks of non-payment of sovereign debts, and thus declaring bankruptcy and repeating the Lebanon scenario.
He explained that these dollars that are collected from the Egyptians will be used to pay the debts first, then to pay the hot money second, and in the end they come to pay the deposits of the Egyptian customers, and therefore it is not known how the government will then return them to the Egyptian customers, especially in light of the absence of profitable economic projects with returns in Egypt now.
He pointed out that the main problem in Egypt is that it does not have revenues in dollars to pay off its debts, and that the government is walking in a closed circle represented in borrowing a new short debt to pay off a previous long-term debt.
The banking expert questioned the success of the government plan to collect dollar liquidity from the black market, explaining that the recent decisions mean that the deposit return rate in Egypt on the dollar is 27 percent, while the return rate on the dollar in American banks is 5.25 percent, and the official dollar rate in the bank The Central Bank of Egypt was 30.95 pounds, while its price on the black market was about 40 pounds, a difference of about 30 percent, and this percentage is higher than the yield of certificates offered in banks.
He pointed out that many have fears that decision-makers in Egypt are working on the principle of “revive me today and die tomorrow,” meaning that “this decision has not been well-studied, and this picture reaches the Egyptians and thus the investors.”
He said that dollar certificates will not attract a huge amount of dollars available in the market, whether with merchants or individuals, because they depend on linking dollars for a period of no less than three years. He explained that what attracts parallel market dollars are savings accounts with attractive returns and interest, with absolute freedom of withdrawal and deposit. However, he explained that this solution faced objections from the government because of its fear that dollars and their interest would be withdrawn from banks to go again to the black market.
But he believes that the cycle in the end would have poured into the banks for the sake of the high interest, stressing that this proposal must be carefully studied by economists and financiers to stimulate the entry of the dollar into the banking market, and thus provide the liquidity that the government needs by reassuring the holders of the dollar.
Another crisis that Khairi spoke about regarding the government’s statements is represented in not asking about the source of the dollars, saying that this decision is very dangerous in relation to the laws regulating the banking sector, because this means that it violates the international laws of the banking system.
He added, “These decisions will allow money laundering and encourage money of unknown origin to enter the banking sector, so that the country will become a hotbed of corruption, and this matter will have serious economic, political and social consequences, especially in light of the sensitive timing of Egypt at present, and it will also expose Egypt to international accountability, which imposed sanctions specifically from the states.” the United States, which will threaten the collapse of the banking sector in Egypt.”
And the Vice-Chairman of the Board of Directors of the National Bank, Yahya Aboul Fotouh, made it clear that all Egyptians can buy savings certificates in dollars, without asking the customer how to obtain these funds. And he said in a telephone interview with “Sada El-Balad” channel, on Tuesday: “If you have a million dollars, enter the bank and issue the certificate, and no one will tell you where you got the money from.”
The economics professor stressed that the only solution to pay the benefits of clients and get out of the economic crisis is the need to use part of the dollar proceeds to restart factories and finance small projects to increase manufacturing and stimulate exports and domestic product, and release strategic commodities stacked in ports, in addition to stopping projects that do not generate any revenue. Returning, such as the express train, the administrative capital, and others.
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