Banks operating in the local market increased the size of their investments in total treasury bills outstanding to 74.38% until the end of January 2017, according to the Central Bank of Egypt (CBE(.
The bank said in a report issued recently that the total size of outstanding treasury bills amounted to EGP 706.973bn until the end of January 2017, compared to EGP 684.721bn at the end of December 2016—an increase of EGP 22.252bn.
The report showed that banks acquired EGP 525.844 of the total size of the treasury bills at the end of January. Private banks’ investment in bills through January reached EGP 252.608bn. Meanwhile, public banks acquired EGP 237.627bn of total bills.
Specialised banks owned EGP 10.211bn of the outstanding balances of bills, while foreign banks’ branches in Egypt shared EGP 25.398bn.
Banks are seen as the largest investor in treasury bills. These banks resell a portion of these bills and bonds in the secondary market to retail investors as well as to local and foreign institutions.
The banks participating in the system are the National Bank of Egypt (NBE), 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, Alex Bank Intesa Sanpaolo, Intesa Sanpaolo Group, Arab African International Bank, Export Development Bank of Egypt, Suez Canal Bank, and Arab Bank.
A senior official in a bank operating in Egypt has been critical of banks increasing their investments in government debt instruments to decrease the budget deficit instead of funding projects. He added that the high budget deficit lowers the country’s credit rating and negatively impacts the classification of banks, which invest in government bills and treasury bonds.
Insurance companies are considered the second largest investor in local treasury bills.
According to the CBE, insurance companies’ shares in the total outstanding treasury bill balances stood at EGP 31.281bn at the end of January 2017.
Public insurance companies’ investments reached EGP 27.09bn, compared to the EGP 3.824bn of private insurance companies and about EGP 367m from foreign insurance companies operating in Egypt.
The holding companies are the third largest investor in local treasury bills, where their acquisition of the total balances of treasury bills amounted to EGP 22.606bn in January.
Investments by foreign customers have increased in treasury bills, recording about EGP 21.686 at the end of January.
Foreign investors were the fourth largest investors in Egyptian treasury bills before January 2011, where their investments recorded about EGP 56bn in December 2010. These investments have fallen to less than EGP 200m, before increasing again after the flotation of the exchange rate on 3 November 2016.
According to Sami Khalaf, head of the public debt sector in the Ministry of Finance, the foreign purchases in government debt instruments amounted to about EGP 79bn until 4 April, compared to about EGP 61bn on 14 March 2017.
According to the CBE, the size of outstanding treasury bills stood at about EGP 69.492bn for 91 days, EGP 133.342bn for 182 days, EGP 110.568bn for 266 days, EGP 98.434bn for 273 days, EGP 128.825bn for 375 days, and EGP 166.312bn for 364 days.
In addition, the outstanding balances of treasury bonds were estimated at EGP 757.3bn until the end of January 2017, with maturities ranging from 18 months to 20 years.
Analysts estimate banks’ shares in those bonds are 80%, as many investors avoid them due to their long maturities compared to treasury bills.
The Ministry of Finance issued a plan, obtained by Daily News Egypt, targeting to issue treasury bills worth EGP 321.5bn and treasury bonds worth EGP 20bn in the period from April until the end of June 2017. These debt instruments aim to finance the state budget deficit in the fourth quarter of the fiscal year 2016/2017.
Many analysts criticized banks’ tendencies to invest a large part of their liquidity in local currency in treasury bills and bonds posed by the government. On the other hand, a number of banking leaders told Daily News Egypt that it is a temporary period until they could find other investment types.
They added that the market has been suffering since January 2011, due to the lack of funding opportunities to absorb their liquidity as a result of the continuing rise in the volume of deposits. It came as a result of the decline in economic activity over the past years, except a limited number of syndicated loans, which are arranged in specific sectors occasionally.
According to the banking leaders, debt instruments are the current best investment, because they are guaranteed and do not involve any risk.
They added that banks would tend to invest in major projects and reduce their investments in government debt instruments, if the local economy witnessed development. They noted that these investment types provide higher yields for banks than treasury bills and bonds do.