First Published: 2017-12-15

Egypt’s rising bank deposits offer little help to investment climate
Increase in bank deposits reflects change in Egyptians’ saving culture but doing little to encourage investments, increase market activity.
Middle East Online

By Hassan Abdel Zaher - CAIRO

Customer checks US dollars in a bank in Cairo.

There has been an unprec­edented rise in deposits in Egyptian banks but the trend is doing lit­tle to encourage invest­ments or increase market activity, analysts said.

Deposits at banks rose $53 bil­lion from August 2016 through August 2017 to $169.4 billion, the Central Bank of Egypt said. Econo­mists attribute the rise to the suc­cess of Egyptian banks in securing greater market liquidity.

“Saving schemes introduced by the banks succeeded in encourag­ing members of the public to save their money, not spend it,” said Abdel Raouf al-Idrisi, an econom­ics professor at Egypt’s October 6 University. “These saving schemes absorbed most of the money in the market.”

Egyptian banks have introduced a range of products, including special saving schemes with in­terest rates of 16-20%. The high rates countered an unprecedented surge in commodity prices after the weakening of the Egyptian pound.

The saving plans attracted bil­lions of dollars. Many of those who had hoarded US dollars, in the hopes of profiting from rising exchange rates, sold dollars to pur­chase high-interest saving certifi­cates. From November 2016 and November 2017, Egyptians traded in $57 billion to local banks, Dep­uty Central Bank Governor Gamal Negm said.

The banks introduced the saving schemes to rein in runaway infla­tion, which was at a three-decade high. They wanted to eradicate a foreign currency parallel market by encouraging Egyptians to sell the foreign currencies and create a greater demand for the Egyptian pound.

“The banks’ saving schemes at­tracted huge amounts of money, liquidity that would have been in circulation in the market, which could have increased the inflation and weakened the national cur­rency even more,” Idrisi said.

The rise in the deposits was ac­companied by an increase in all economic indicators.

Real gross domestic product (GDP) rose by a revised 5% in the fourth quarter of the 2016-17 fiscal year, and averaged a 4.6% increase over the second half of the year, which represented the fastest growth since 2009-10, the Central Bank said.

Commodity exports grew by 10% in the fourth quarter while commodity imports fell by 14%, successfully narrowing Egypt’s trade deficit by 26%, according to the office of the presidency.

The rise in bank deposits re­flected a change in Egyptians’ saving culture, economists said. However, this has not been accom­panied by an increase in demand by local investors for loans.

“One reason this is happening is that bank interests on loans are very high,” said Ashraf al-Arabi, a member of the Egyptian Par­liament’s Economic Committee. “Instead of investing their money, people are buying saving certifi­cates to benefit from high interest rates and few people are ready to pay the high borrowing interest.”

The interest rate on some loans was 20%, which is scaring inves­tors away, he said. The banks do of­fer loans with lower interest rates to small-project developers and tourism investors but big projects that can move the economy for­ward and contribute to job crea­tion tend to require borrowing at higher interest rates.

“One can easily claim that the deposits have turned into a load on the banks, with few investors approaching these banks for loans at the current interest rates,” said economist and tax consultant Khaled al-Shafie. “The banks need to reduce the interest rates for bor­rowing a bit if they want to incen­tivise investments and encourage individuals and institutions to borrow.”


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