Egypt’s hard currency liquidity crisis forces extreme measures for banks

Dollar-deposit certificates offered at 9 percent returns 
Egypt’s hard currency liquidity crisis forces extreme measures for banks
Egypt hard currency

Drawing foreign currency from local banks in Egypt is challenging as the net foreign-asset position dropped to a record negative $24.4 billion at the end of June, 2023.

Tapping international markets is also proving difficult. Yields on Egypt’s 10-year dollar bonds are around 15% and there are growing foreign-currency liquidity risks reflected by the negative outlook assigned to Egypt’s foreign-currency credit ratings of B.

The Egyptian pound has lost nearly 50 percent of its value against the dollar since March 2022 when a series of steep devaluations followed an agreement with the IMF to make a number of currency exchange and other financial reforms under a $3 billion loan program.

However, the first review under the IMF program has been postponed as the exchange rate has remained steady at around 30.85 pounds to the dollar since March.

Read: The Sovereign Fund of Egypt (TSFE) enters the top 50 global wealth list: SWFI

Because of this, Egypt’s two biggest state banks on issued U.S. dollar-denominated certificates of deposit with high returns, in an apparent attempt at luring dollars away from the black market and back into the financial system.

Banque Misr and the National Bank of Egypt (NBE) are offering a three-year dollar-denominated deposit certificate with 9% annual interest to be paid upfront in Egyptian pounds.

The banks said they were offering another three-year dollar deposit certificate with a 7% yield paid quarterly in U.S. dollars.

Both certificates are offered to Egyptians and foreigners alike with a minimum deposit of $1,000.

Local currency deposits

The Central Bank of Egypt (CBE) revealed in May, 2023 that the domestic liquidity in the banking sector increased by EGP 562.3bn ($18.17 bn) to EGP 7.965 trn in March 2023, compared to EGP 7.402 trn in December 2022.

The CBE stated that the money supply recorded EGP 1.844trn in March 2023, compared to EGP 1.739trn in December 2022, and the cash circulating outside the banking system amounted to EGP 859.5bn compared to EGP 831.2bn.

Egyptian President Abdel Fattah al-Sisi is opposed to more local currency devaluation believing such a move could harm national security and hurt Egyptian citizens.

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