15% saving certificates increase household sector’s control of Egyptian deposits

Hossam Mounir
7 Min Read

The proceeds of the 15% saving certificates offered by the National Bank of Egypt (NBE) and Banque Misr in mid-March 2020 amounted to about EGP 380bn, according to Central Bank of Egypt (CBE) Governor Tarek Amer.

The NBE and Banque Misr offered the one-year certificate on 22 March, with the certificate providing holders with a fixed return that is to be disbursed monthly. The certificates were made available for purchase via electronic platforms, including by e-mail, call centre, and mobile banking services.

The certificate categories begin at EGP 1,000 and its multiples, and can be recovered after six months.

Banking expert Mohamed Abdel-Aal

Banking expert Mohamed Abdel Aal said that these certificates attracted a record number of deposits in a short period, describing them as a “genius” vessel for attracting savings. It is anticipated that they will reduce un-invested liquidity in the hands of citizens. In turn, this instigates a significant reduction on the demand for the US dollar, as a result of the interest difference in favour of the Egyptian pound.

In addition, the certificate has also encouraged and motivated some of those who maintained dollar balances to convert to the Egyptian pound to gain the interest difference. Abdel Aal pointed out that this vessel has prevented any possibility of a dollarization occurring, and has helped stabilise the exchange rate, whilst also helping to resist inflation.

He added that this product also helps household sector savers, as while the liquidity is frozen for a year, it does provide this segment of saver with the highest possible monthly return on their savings.

The high returns have compensated for some price rises, and helped them stimulate the derivative demand for commodities and services, as it is known, without consumption there will be no production. The certificate has also helped savers keep some form of liquidity given the occurrence of inflationary recession, particularly as the novel coronavirus (COVID-19) pandemic took hold.

“This vessel, in my view, did not negatively affect the deposits at some banks, despite some customers withdrawing all or part of their deposits to buy the 15% certificate, and the evidence is that the total deposits at banks have achieved an increase,” Abdel Aal said. “But it can be said that there are some banks that needed to reduce their deposit costs, due to having excess liquidity.”

He added that the NBE and Banque Misr will bear an exorbitant cost for the high return of this certificate. This will be off-set, however, as both banks will be able to compensate for that with the medium-term liquidity that can be used to finance national projects and syndicated loans

Abdel Aal also said that attracting such a large number of customers in a short period of time would bring them a stable customer base. This, in turn, could be a great field for marketing retail products and financing companies in the future.

Moreover, many of the customers bought the certificates online, thus helping Egypt’s ongoing digital transformation process and stimulating financial inclusion, according to Abdel Aal.

He stressed that the 15% certificate was created as a continuation of decisions made by the CBE’s Monetary Policy Committee (MPC), which reduced Egypt’s interest rate by 3% in March 2020. The committee’s move was ostensibly to counter the negative economic repercussions of the coronavirus.

Abdel Aal pointed out that the introduction of this container has brought about a balance between reducing interest to protect the economy, and having high interest to protect family sector savers.

He indicated that targeting inflation was not part of the vessel’s goals, especially since inflation is still lower than the CBE’s target.

Amer also revealed that the volume of deposits in banks increased from about EGP 1.555trn in July 2014, to about EGP 4.687trn in July 2020.

The CBE governor pointed out that banks operating in Egypt granted about EGP 724bn in interest to about 6 million savings certificate holders, who own about EGP 2trn.

Previous to Amer’s statements, the CBE had revealed that the household sector had acquired 89.7% of total local currency deposits in banks at the end of July 2020.

In a recent report, the CBE stated that the volume of local currency deposits with banks operating in the local market jumped during the month of July 2020 to EGP 3.333trn. The latest figures reflect a significant EGP 63.82bn increase compared to the EGP 3.269trn by the end of June 2020.

Amer pointed out that local demand deposits amounted to EGP 488.975bn at the end of July, compared to EGP 482.01bn at the end of June 2019, an increase of EGP 6.965bn.

According to the CBE, the volume of local currency deposits and savings certificates with banks operating in Egypt stood at about EGP 2.844trn during July 2020. This reflected an increase of EGP 56.855bn compared to the EGP 2.787trn reported by the end of June 2020.

It explained that the public sector’s share of demand deposits amounted to about EGP 260.048bn compared to EGP 197.934bn for the private sector, and about EGP 334m for the household sector.

The public sector’s share amounted to EGP 32.626bn for time deposits and savings certificates, compared to EGP 153.984bn for the private sector, and EGP 2.657trn for the household sector.

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