The banks operating in the Egyptian market delayed increasing the interest rates on their saving schemes in Egyptian pounds until an increased return is witnessed through their debt instruments, in which banks invest the majority of their liquidity, according to a number of investment bankers.
The banks started to hold intensified meetings on Sunday morning to discuss the future of interest rates on the deposits and loans they handle. The meetings came after the Central Bank of Egypt’s (CBE) decision last Thursday to increase its basic interest rates by half of a percentage point.
In the first response to the CBE’s decision, about 30 saving certificates and a number of loans’ products in the banks operating in Egypt witnessed a direct increase, as a result of their decision to link their interest rates on these certificates and loans to the returns at the CBE. The CBE’s rates directly affect the banks’ rates.
Assets and Liability Committees, which are responsible for deciding the interest rates in the banks, fixed the interest rates on the remaining saving schemes until return through debt instruments increase. The committees’ goal is to decrease the gap between the rate paid on deposits and the rate procured on money lent, especially as banks prepare to close their budget for 2015.
The return on issued treasury bills and bonds that the Ministry of Finance proposed last Sunday and Monday witnessed a limited increase and did not reach the level of a quarter of a percentage point.
The average return on the treasury bills that were proposed last Sunday with a maturity period of 91 days increased by about 0.16 percentage points, reaching 11.336%, compared to the 11.176% it registered before raising the interest rates at CBE in the last week. The return on these bills ranged between 11.385% and 11.13%.
The average return on the bills with maturity period of 273 days increased by about 0.2 percentage points, reaching 11.796%, compared to 11.604%; the return ranged between 11.821% and 11.65%.
The average return on the zero-coupon bonds with maturity period of 18 months witnessed a limited increase as well, registering 11.993%, compared to 11.844%. The average return on the bonds with a maturity period of three years increased to 12.663%, compared to 12.521%, while the return on bonds with maturity period of seven years increased to 14.572%, compared to 14.43%.
According to assistant general manager of the treasury at a private banks operating in the local market, Osama El-Manialawy, the increase on the rate of return for the treasury bonds and bills witnessed are not encouraging banks to increase the interest rates of their saving schemes.
He added that some of the banks, including his bank, issued savings certificates with a high return that reached 12.5%, and they were not compensated for this increase, where the return through the debt instruments did not witness any notable increase, which led to increasing the gap between the rate paid on deposits and the rate procured on money lent, and decreasing their profit’s volume.
El-Manialawy noted that the banks are still monitoring the return on the debt instruments, and in case it changes in a proper way, the banks will change the return of their saving schemes. He expects that if this change does occur it will happen days after the beginning of the new year.