Banks operating in the domestic market offered investments worth EGP 91bn of surplus liquidity in local currency via deposit operations, which was deposited by the Central Bank of Egypt (CBE) on Tuesday, according to data obtained by Daily News Egypt.
The CBE accepted EGP 75bn of the investments it was offered at an interest rate of 15.25% for one week. The allotment rate stood at 82.41%.
The CBE adopted this mechanism in April 2014 in order to absorb excess liquidity in banks operating in the Egyptian market.
Banks operating in Egypt have been suffering from large unemployed liquidity since January 2011, in light of the lack of demand on loans—except for syndicated loans that are organised for major projects from time to time.
The liquidity grew further following the decision to float the Egyptian pound on 3 November, considering the impact of the decision on raising the interest rates on saving vessels by 3-8% at once.
The deputy governor of the CBE, Gamal Negm, said in previous remarks that the new saving certificates with an interest rate of 16% and 20% have collected new liquidity from outside the banking system estimated at EGP 64bn until early December.
A senior official at one of the private banks in Egypt said that banks are watching the economy closely following recent reforms, awaiting opportunities to employ their liquidity surplus to cover the cost of funds they have, instead of relying on investments in government debt instruments.
A recent CBE report showed that the loans to deposits ratio until the end of September 2016 registered 44.2%, while Egyptian pound denominated loans grew to 38.7%.
A number of banking officials have then told Daily News Egypt that banks are not satisfied with confining their investments to government debt instruments and fixed-return vessels, adding that these remain the safest investments in light of the absence of other employment options.
“Banks deal with the options they have,” one banker has said. “We are ready to inject funds into other vessels that offer better investments.”
He added that it is in banks’ interest to finance clients and projects and open letters of credit as they involve commissions and benefits; hence, larger profits.