Press release: Moody’s:Egypt’s US Dollar Certificates Issuance Is Positive for Banks, but Insufficient to Quell Their Liquidity Pressure
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Last Monday, the Central Bank of Egypt, the Minister of Immigration and Egyptian Expatriates, and the leading government-owned banks, National Bank of Egypt SAE (B3 stable, caa17 ), Banque Misr SAE (B3 stable, caa1), and Banque Du Caire SAE (B3 stable, caa1), announced the launch of US dollar certificates for sale to Egyptian expatriates.

The sale of these certificates will increase the three government-owned banks’ dollar funding, a credit positive because banks’ dollar liquidity has tightened in recent quarters. However, we estimate the increase is insufficient to alleviate businesses’ foreign currency needs and covers less than one month of imports, so that banks’ foreign currency liquidity cushions will continue to decline.

The certificates, called Biladi (homeland), will be available to Egyptian expatriates, and will carry a fixed interest rate. A one-year certificate will be issued at 3.5% per year, a three-year certificate at 4.5% and a five-year certificate at 5.5%. Given these high returns, the products will likely be appealing to investors.

Egyptian expatriates remit mainly to cover their families’ daily needs, although a small part is also intended for saving. In September 2014, Egyptian banks raised EGP64 billion (around $8.5 billion) in investment certificates to finance the Suez Canal widening in only eight days, exceeding the authorities’ expectations. Nevertheless, the country is facing a severe shortage of dollars and the funds raised will not be enough to meet business demand.

The World Bank estimates remittances in 2015 were around $20 billion, although only a small part is captured by the banking system because less than 10% of the adult population have a bank account. Moreover, recipients of remittances in bank accounts usually withdraw these funds to benefit from better rates in the unofficial market. Even if, for example, 10% were invested in the Biladi certificates, the banks would only raise around $2 billion, less than one month of imports.

The Egyptian authorities have recently taken myriad steps to increase the availability of dollars to businesses operating in the high priority sectors of pharmaceuticals, food and manufacturing. The government tightened the criteria and procedures for importing goods that are not included in a priority list established in 2011, and increased tariffs on such goods. In addition, the Central Bank of Egypt recently eased previously installed cash dollar deposit limits to allow importing companies to buy dollars from unofficial traders and deposit them in banks so as to use them to finance their imports.

The move came after Egyptian companies complained to the government that Egyptian banks do not have enough dollars to sell to them to meet importing needs. Given the severe dollar shortage, we do not consider these banks’ increased dollar funding to be enough to offset the erosion of foreign-currency liquidity cushions.

The banking system’s liquidity ratio (cash due from banks and liquid investments as a percentage of foreign assets) in foreign currency declined to 48.9% as of September 2015 from 57.4% in June 2014, but we estimate that the ratio is materially lower at around 27.5% if we exclude the banks’ investments in foreign-currency Egyptian government bonds and treasury bills, which are usually renewed at their maturity.

he preceding was a press release by the Suez Canal Authority, and does not reflect the editorial policy of The Cairo Post. 

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