A number of banks in Egypt have developed new restrictions for granting loans guaranteed by deposits, both short-term deposits and saving certificates. This aims to put an end to the phenomenon—also known as leveraging—that swept through banks in the past few days.
Over the week, banks have noticed an increase in appetite from customers to obtain loans guaranteed by their savings. An analysis showed that the clients get liquidity to invest in the new saving certificates offered by banks with interest rates of 16-20%.
Through this scheme, clients preserve their deposits and obtain liquidity to reinvest in the saving certificates without having to break their deposits and lose money. Clients who followed the scheme continue to receive interest on their initial deposits, while obtaining more interest from investing in the new saving certificates.
Banks were allowing customers to borrow what is worth of up to 90% of the their deposits’ value with an interest rate of 2% over the interest rate they receive on these deposits. For instance, if a customer has a deposit at a bank’s saving vessel with an interest of 10%, they could obtain a loan worth 90% of the deposit and pay an interest of 12%.
According to a treasury head at a governmental bank, clients found a loophole through which they get 6% more than the interest they pay on the loans guaranteed by their deposits, from the interest they obtain on the new certificates.
He added that banks found this and raised the interest on these loans to 4%, and imposed a commission of 0.025% on these loans.
Through this, banks aim to attract new liquidity through offering high-interest certificates and not moving existing liquidity from one vessel to another.
About 70-85% of liquidity deposited in the new certificates were either transferred from other saving vessels in the same banks, or loans obtained by clients and guaranteed by their existing deposits. Only 15-30% was new liquidity attracted from outside the banking sector.