Government-owned, private, as well as specialised banks have reduced their investments in treasury bills (T-bills) by EGP 31.205bn in November 2018, according to the Central Bank of Egypt (CBE).
The CBE explained in its monthly reports that the balance of the public commercial banks in T-bills declined by EGP 25.003bn by the end of November, reaching EGP 361.328bn, compared to EGP 386.331bn at the end of October 2018.
On the other hand, specialised banks reduced their balance of T-bills by EGP 38m, reaching EGP 14.089bn by the end of November, compared to EGP 14.127bn at the end of October.
According to the CBE, the private banks’ investments declined in November 2018 to reach EGP 296.253bn, compared to EGP 302.417bn in October 2018, which is an EGP 6.164bn decline.
On the other hand, foreign banks working in the Egyptian market took an opposite stance by increasing their investments in T-bills in November 2018 by EGP 3.87bn, reaching EGP 50.172bn, compared to EGP 46.302bn at the end of October 2018.
The foreign banks in the Egyptian market also took an opposite stand to the foreign investors’, regarding the investment in the government’s debt instruments.
According to the CBE, foreign investors continued to end their investments in Egyptian T-bills in November 2018, for the eighth month in a row.
The CBE explained that foreign partners’ investments recorded EGP 194.473bn by November, compared to EGP 210.213bn in October, and about EGP 380.308bn in March, which was the highest level reached in T-bills since December 2010.
There were strong expectations of a decline in all the sectors’ investments in the government’s debt instruments, following the decision made by the finance ministry in November 2018 to amend the tax system levied on investing in these instruments, causing dissatisfaction among investors.
Banks account for 56.23% of the total outstanding balance of T-bills, making them the largest investors in these instruments.
Investment banks and multiple research centres expected banks to reduce their investments in government debt instruments following this decision, in order to reduce their financial burdens and reroute towards lending to clients.
Shuaa Securities stated in a report that banks will reroute 10% of the investments in the government’s debt instruments to loans.
Furthermore, Fitch Credit Rating said that the new processing of taxes could encourage banks to maintain their liquidity surplus in order to reinforce loans, and avoid the government debt instruments, explaining that banks which have high rates of public debts are prone to more damage by the new system mandated by the ministry which stipulates calculating the return on investment in debt instruments.
Fitch expected the banks to reduce their government debts and seek to increase lending to the private sector, in order to protect their margins, however, this weakens capital ratios, given that investing in loans means bearing certain risk levels, compared to sovereign debts.