Government-owned banks operating in the domestic market increased the size of their investments in government treasury bills by EGP 13.871bn in July, according to the Central Bank of Egypt (CBE).
The bank said in a report issued on Wednesday that the total size of government banks’ investments in treasury bills amounted to EGP 282.03bn at the end of July, compared to EGP 268.159bn in June.
An analysis conducted by Daily News Egypt showed that government banks acquired 42.17% of the total size of the outstanding balance of treasury bills at the end of July, estimated at EGP 668.74bn.
Meanwhile, private banks reduced their investment in bills through July by EGP 2.349bn, falling to EGP 199.017bn which is equivalent to 29.76% of the total outstanding balances of bills.
Specialised banks owned EGP 7.947bn of the outstanding balances of bills, while foreign banks’ branches in Egypt shared EGP 26.16bn.
According to the analysis, the banking sector accounted for 77.033% of the total outstanding balances of treasury bills as of the end of July, when the sector’s total investments registered EGP 515.154bn.
Moreover, banks also contribute indirectly in bills through their affiliated investment funds.
The CBE had also stated that the size of outstanding treasury bonds amounted to EGP 750.2bn at the end of July.
Analysts estimate the share of banks to be between 80% and 90% of the total size of those bonds, attributing that to the long maturity period they enjoy.
Treasury bonds and bills are proposed through 15 banks that are the primary dealers in the primary market. These banks resell a portion of these bills and bonds in the secondary market to retail investors, as well as local and foreign institutions.
The banks participating in the system include: the National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank (CIB), Citibank, HSBC Egypt, Misr Iran Development Bank, Qatar National Bank (QNB), Crédit Agricole Egypt, Barclays Egypt, AlexBank Intesa Sanpaolo, Intesa Sanpaolo Group, Arab African International Bank, Export Development Bank of Egypt, Suez Canal Bank, and Arab Bank.
Many experts have been critical of banks increasing their investments in government debt instruments instead of funding projects.
In response to these criticisms, chairperson and managing director of the Housing and Development Bank (HDB) Fathy El-Sebai said that banks are not happy with investing in debt instruments. However, he noted that banks are forced to make these investments, as these are guaranteed, especially in light of lack of employment opportunities in the market.
“Banks, after all, deal with available financial opportunities,” he said. “If there are other alternatives with a high yield than government debt instruments, banks will make sure to invest in them.”
Moreover, he noted that it is in the banks’ best interest is to fund clients and project owners, or open new letters of credit, which brings commissions and interest and makes profits greater than debt instruments.
Managing director and CEO of BLOM Bank Mohamed Ozalp said that treasury bills and bonds for banks are just like any other investment in light of the lack of alternatives. He stressed that banks will inject money in other investments if given the chance.
Ozalp said that the banks’ main job is investing in projects that would yield good returns and push the economy forward, which makes projects better than government debt instruments for banks.
He also attributed the situation to the lack of other alternatives, noting that deposits have been growing, prompting banks to look for any investments to cover the cost of deposits.
He pointed out that the recent period had already seen a change in this situation with the improvement of state conditions, where banks finance large and small projects to drive economic growth.