How is the banking sector affected by the decision to cancel savings certificates with a return of 15%?


Private – Mubasher: The decision of Banque Misr and Al-Ahly to cancel high-yield certificates sparked controversy in the banking community, amid expectations that the sector would benefit from the decision.

Is made Mubasher “The effect of canceling the issuance of that certificate at that time on the Egyptian banking sector, the most prominent of which is giving banks space to form the necessary allocations to face the crisis, improving the market value of banks and their profits, as well as the positive impact on the cost of deposits with banks.”.

And at the beginning of this week, Banque Misr and Al-Ahli Bank decided to stop issuing new savings certificates for a period of 12 months with 15 fixed returns.%.

For his part, Shihab Muhammad Helmy, banking analyst at Prime Investment Bank, told “Mubasher”: These certificates were primarily aimed at controlling inflation levels and curbing price hikes with the onset of Coronas spread, and coinciding with the interest cut in March to stimulate the economy.

He explained that now, after the easing of procedures and the return to normal life to some extent, it became useless to continue with these certificates, pointing out that these certificates were badly hurting the profits of government banks.

He continued: With the resumption of the banks to collect the installments, they will be forced to form provisions to meet any deficit or delay in collecting the installments from the affected customers, which leads to pressure also on the profitability of the banks..

He added that the current situation has made banks tend to choose the best option by relieving pressure on bank profits in terms of certificates to face the second pressure in terms of making provisions..

The National Bank of Egypt has raised investments estimated at 280 billion pounds from the platinum savings certificates, while Banque Misr has collected 103 billion pounds from Ibn Misr savings certificates since March..

It is noteworthy that the National Investment Bank also reduced the yield of 3-year certificates (issued by the National Bank of Egypt) from 12% to 10%, two-year certificates from 14% to 10.5%, and one-year certificates from 13% to 10.25.%.

Last month, the House of Representatives finally approved a bill submitted by the government regarding the abolition of the scheduled exemption on the proceeds of treasury bills, bonds and capital gains resulting from dealing in these bills and bonds from the income tax.

Whereas, according to Beltone Investment Bank, this suspension of issuing high-return savings certificates gives banks the ability to expand their deposit base..

And he expected the market share of the banks covered by Beltone to witness a gradual improvement with the calm of competition, which would provide an outlet for the growth of financial centers..

He pointed out that, at the same time, the decision will enhance the pricing opportunity at banks under coverage, which will positively affect the cost of deposits with banks and thus net interest margin levels..

Beltone mentioned that banks with a high percentage of retail deposits are major beneficiaries (such as Faisal Islamic Bank, Abu Dhabi Islamic Bank – Egypt, Commercial International Bank, and Credit Agricole Egypt).

The certificate granted a return of 15 percent annually for a year, the return of which would be spent monthly, which is the highest interest in the banking system.

The categories of the certificate start from one thousand pounds and its multiples, and are issued to natural individuals or minors. It is possible to borrow with the guarantee of the certificate, in addition to the possibility of issuing credit cards with its guarantee as well..

Surprisingly, the Monetary Policy Committee of the Central Bank of Egypt decided last March to reduce the deposit and lending rates for one night and the price of the main operation by 300 basis points, to reach 9.25 percent, 10.25 percent and 9.75 percent, respectively..

The committee confirmed at that time that the measure to reduce interest rates was taken as an exceptional measure, which contributes to supporting economic activity in all its sectors, taking into account future expectations of inflation and its consistency with the targeted inflation rate of 9 percent. (±3%) During the fourth quarter of 2020.


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