Banque Misr’s recent decision to raise interest rates on investment certificates to 12.5% has created competition amongst Egypt’s banks, as well as a veritable state of emergency, leading a number of banks to hold meetings studying the effects which this decision will have on the market.
The National Bank of Egypt (NBE), the country’s largest bank, and which is also responsible for roughly 27% of the country’s deposits, has, in response to Banque Misr’s move, raised interest rates on platinum, its primary savings instrument, by an additional 2%.
Karim Mohamed Abdel Aziz, executive manager of equity funds and National Fund Management Company, believes that, theoretically, equity funds will be affected by the interest rates hike and are likely to see a huge investor exodus in favour of safer returns.
“NBE’s fourth fund lost EGP 8.5m yesterday due to investors exiting from the fund to NBE’s investment certificates or Banque Misr’s investment certificates,” Abdel Aziz said. “The interest rate hike has had a negative impact on fixed income funds, and now after the central bank’s decision, fixed income funds are no longer the best choice for investors, with interest rates here about 8% to 9%, compared with NBE’s new investment certificate rates of 12.5%,” he added
Ehab Saeed, a member of the board of directors of Osool Brokerage, is more optimistic, however, believing that the central bank’s decision to combat what he calls the “dollarisation phenomenon”, and which led to Egyptian pound’s exchange rate deterioration, will actually attract investors to invest in EGP-denominated fixed income products.
Meanwhile, Egypt’s Commercial International Bank (CIB) also raised its interest rates yesterday in accordance with NBE and Banque Misr.
Representatives from these three banks said that they began holding emergency meetings yesterday, studying the effects of increased interest rates on their savings coffers.
Piraeus, Banque du Caire, the Exports Development Bank of Egypt, Bank of Alexandra, Ahli United Bank and the Arab Investment Bank, will all decide next week whether or not to also increase their interest rates.
These moves will likely complicate matters for Egypt’s government which has already begun to suffer from the high costs of funding its budget deficit.
These banks will likely direct a majority of their IPO deposits into government debt instruments with high rates of return. A similar situation led to a price war 14 months ago in Egypt’s banking sector, when prices on interest rates were raised to record levels.
