Banks operating in the Egyptian market are facing severe difficulty in obtaining loans from foreign banks and financing institutions due to the high interest rates these banks and institutions impose for such loans.
The Central Bank of Egypt (CBE) has asked banks to provide their support in overcoming the crisis of the dollar shortage in the local market, and to look abroad for loans and facilities in foreign exchange.
Zeinab Hashem, CEO and managing director of ADIB Capital (the investment arm of Abu Dhabi Islamic Bank (ADIB) Egypt) said the bank is making significant efforts to attract foreign exchange from abroad to contribute to solving the dollar shortage crisis in the Egyptian market. However, it has faced severe difficulty in this regard.
She explained to Daily News Egypt that the foreign banks and financing institutions, to which the banks operating in the Egyptian market resort for obtaining loans in foreign exchange, require high returns of 5.5% on these loans.
This is an incredibly high return compared to the return on investment in dollars in the global capital markets. Hashem said it is not a suitable rate for the banks operating in the local market.
Deputy Chairman of the National Bank of Egypt (NBE) Yehia Abu El-Fotouh previously told Daily News Egypt that the bank delayed the offering of bonds, which were to be issued in the international capital markets for the same reason: the high interest rates the investors in these markets requested in exchange for their investment in these bonds.
The dollar return in global capital markets amounts to approximately 1%, while the Egyptian government granted a return of 3.5% for dollar treasury bills with a maturity period of a year in an auction last February. ADIB Capital is in negotiations to attract foreign investors to the Egyptian market, Hashem said.
She explained that there are projects proposed in the new and renewable energy sector, with investments ranging between $30m and $60m for each project, and there are investors interested in these projects. Moreover, there are banks willing to finance them. The company’s mission is to coordinate between these parties.
Hashem expects foreign investors will return to invest in the treasury bills and bonds offered by the Egyptian government, after working in accordance with the hedge contracts that guarantee them a unified dollar price while entering and exiting from the Egyptian market. Moreover, these contracts guarantee their ability to transfer the value of their investments and profits abroad.
She added that the volume of foreigners’ investments in the government debt instruments amounted to approximately $10bn before the 2011 Revolution. It is possible to return to this level if foreigners’ confidence in the Egyptian market is restored, she added.