Pound holds up better than expected as banks reopen

Dahlia Reda and Reuters, Monday 7 Feb 2011

No liquidity crunch has been seen in banks in the first open day but fears of increasing dollarization should political tensions persist


The demands of Egyptians who stood in long queues to withdraw cash Sunday, be it in dollars or Egyptian pounds, were all fulfilled, many bankers have told Ahram Online.

Egypt's Alex Bank, which is controlled by Italy's Intesa Sanpaolo SpA, on Sunday told Reuters that it had ended its first day after a week-long bank closure caused by political unrest with a net cash surplus of LE4 m.

Alex Bank Chairman Mahmoud Abdel Latif said his bank had unofficially opened for its commercial customers for several days during the bank closure to provide salaries and accept deposits.

"Because there are plenty of companies, especially in the food business, that have been making tonnes of money and, as you know, everything has been in cash in the last few days, people were flooded with cash and they were depositing," he said.

He said his bank had provided about LE14 m for salaries, but had received LE19 m of cash.

Clients of private banking service were allowed to withdraw as high as one million dollars, "provided the approval on a case by case basis of the bank administration," says Hassan Ghoneim, managing director of Al Ahly al-Mottahed bank, speaking in front of a dozen of VIP clients waiting, in an elegant salon, for their turn to withdraw cash.

The National Bank, the biggest in the country, takes five days processing companies' demands in order to avoid capital flight, says Atteya Salem, managing director of the bank.

Meanwhile, the Egyptian pound fell slightly to 5.93 against the dollar compared with 5.86 when banks last traded the currency on 25 January.

The dollarization was not as forceful as expected by many traders.

Hisham Ezz Al-Arab, chairman of the Commercial International Bank (CIB), estimates the dollarization rate at currently 18 per cent. The Central Bank denied any intervention on the exchange market to support the Egyptian pound.

In Alex Bank, about 90 per cent of the dollar withdrawals were for settlements under letters of credit in the normal course of business, with the rest by a few individuals taking out somewhere between five to ten thousand dollars.

The central bank had set a limit of the equivalent of ten thousand dollars for foreign currency cash withdrawals.

Trade was heavy as foreign investors and Egyptians sent money out of the country because of the political instability. Around LE400 m changed hands in the first 45 minutes, compared with a typical LE300 to LE400 m for a full day before the crisis, one trader told Reuters.

The central bank, had $36 billion of official foreign reserves at end-December.

Pressure on the pound is likely to grow more acute if the political tensions persist. Barclay's bank predicts the dollar to soon reach LE6.

UBS Investment Research on Friday predicted that the pound could fall by as much as 25 per cent within a month, which would put it well below seven against the dollar. Credit Agricole suggested on Thursday that the pound could drop 20 per cent "over the short term."

Only 29 banks out of 39 were operational with around 30 per cent of branches open for the public.

"There will be a gradual return to normal," says Hecham Ramez, deputy governor of the central bank, adding that securing the transportation of large sums of money still poses a problem.

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