Egypt shares closed last week on an up note, but a downtrend for banks stocks have limited the markets’ gains after the Central Bank of Egypt decision to raise the cash reserve ratio (CRR) for the banks working in the Egyptian market.
The benchmark EGX30 index inched up 0.075 or 9.7 points to the level of 13,891.71 points by the end of the week.
About 1.68 billion shares were traded on the EGX30 index at a turnover of EGP 4.46 billion.
The Commercial International Bank – Egypt (CIB), the heaviest weight in the index, shed 2.1% to 77.8 at a turnover of EGP 479.4 million, as 6.14 million shares were traded.
Pharos Research said in a report that the Central Bank of Egypt’s (CBE) decision to raise reserve requirement on banks will have a short-term negative impact on net interest margin (NIM).
This decision will devour 5% of the fair value (FV) of listed banks, Pharos added in a recent report.
The CBE will raise the cash reserve ratio to 14% from 10% starting from 10 October 2017.
Pharos indicated that banks will tend to protect profitability through lowering interest rates paid on deposits to compensate for the lost yield and requesting higher rates of return in treasury auctions.
The required reserves ratio settled at 14% between 2001 and 2012, and was gradually lowered since January 2011 by 4%, until it reached 10% to support the Egyptian banking sector.
Pharos noted further that Commercial International Bank – Egypt (CIB), Credit Agricole Egypt, Export Development Bank of Egypt (EBE) will be the least affected by the CBE’s decision because of the local deposits these banks have.
Market capitalisation closed at EGP 771.2 billion, gaining EGP 2.6 billion on a weekly basis, versus EGP 768.6 billion at the week before close.
The EGX70 index rose 2.22% to 815.9 points, while the EGX100 index levelled up 1.16% to 1,809.36 points.
The equal-weight EGX50 index added 1.99% to 2,389.42 points, with a turnover of EGP 5.3 billion.
Foreign investors were net buyers with EGP 70.5 million, while Egyptian and Arab investors were net sellers with EGP 52.7 million and EGP 17.8 million, respectively.
Blue chips including Elsewedy Electric, Oriental Weavers, and Arab Cotton Ginning leveled up 5.3%, 3.6%, and 3.25%, respectively.
On the other hand, Porto Group Holding, Egyptian resorts, and Citadel Capital fell 3.92%, 3.55%, and 2.88%, respectively.
On another note, Banks in Egypt may lower interest rates due to the Central Bank of Egypt’s (CBE) decision to raise reserve requirement for banks to 14%, head of research at Pharos Holding for Financial Investments Radwa El-Swaify told Bloomberg.
This decision will push banks to reduce deposit interest rates, she highlighted.
Additionally, demand for government debt instrument will increase in, leading to higher cost of borrowing, she added.
El-Swaify had previously forecasted that the CBE would lift the cash reserve ratio (CRR) in the period between 2001 and 2012.
El-Swaify noted that the CBE is trying to restrain liquidity through raising CRR, instead of changing interest rates.
On 3 October, the CBE announced boosting CRR to 14% from 10% starting from 10 October 2017.
The CRR settled at 14% between 2001 and 2012, and was gradually lowered since January 2011 by 4%, until it reached 10% to support the Egyptian banking sector.
Meanwhile, Egypt’s global depository receipts (GDRs) listed on the London Stock Exchange (LSE) fell during last week transactions.
Commercial International Bank – Egypt’s (CIB) GDR slipped 0.34% to $4.38, after recording its highest price at $4.41 and lowest price at $4.33.
EFG Hermes’ GDR dropped 3.61% to $2.4, recording the highest price at $2.05 and lowest price at $2.24.