The state-owned National Bank of Egypt (NBE) and Banque Misr have introduced one-year savings certificates with unprecedentedly high rates of interest of 27 per cent to be collected upon maturity and 23 per cent collected on a monthly basis.

The new certificates offer interest rates two per cent higher than those the two banks offered in January 2023, which are maturing throughout this month, and that collectively collected LE500 billion, including LE91 billion on the first three days of the offering.

The new certificates were available starting on Friday online and via the banks’ mobile applications. They collected LE11 billion on the first day of issuance.

The NBE collected LE7 billion and Banque Misr LE4 billion on Friday alone, Mohamed Al-Etrebi, chairman of Banque Misr, said in TV statements. By Monday, the two banks had gathered LE45 billion, LE30 billion by the NBE and LE15 billion by Banque Misr.

Al-Etrebi expects the new certificates to attract over LE500 billion in savings, adding that the two banks may make the certificates available well into February.

“The primary reason these certificates have been introduced is to prevent the liquidity [of the 2023 certificates maturing this month] from entering the market, because this could lead to an undesirable surge in inflation, potential dollarisation, or a rush towards gold,” said Israa Ahmed, a macroeconomic analyst at Pharos Holding.

However, the return on the certificates is negative, given that the 27 per cent return is lower than the last recorded inflation rate of 34.6 per cent in November 2023. When the previous certificates were issued last year, the return exceeded the annual urban inflation rate the month before their launch, standing at 18.7 per cent in November 2022.

But “the new certificates are attractive to a large segment of society that wants to avoid risk or the shocks that may occur with other means of saving, such as gold,” Ahmed said.

Hani Geneina, an economic analyst and lecturer at the School of Business Administration at the American University in Cairo, attributes the high returns on these certificates to the current surge in inflation and its expected continuation in the first half of the current fiscal year, aligning with the reforms outlined by the International Monetary Fund (IMF).

If the proceeds of the certificates maturing this month are channelled into the market, they will probably be directed into purchasing dollars, gold, or real estate, heightening pressure on the dollar in the parallel market and impacting the gold market, said Mohamed Hassan, managing director of Alpha Financial Investments Management.

Hassan added that directing a portion of this money towards purchasing gold would likely result in an increase in its price and subsequently increase the price of the dollar in the parallel market, currently standing at LE57.

Hassan believes the new certificates will not significantly impact the banks’ profits. He explained that the banks’ portfolios include short and medium-term loans with average yields of 19 per cent, so there is a continuous inflow of income that would cover the payments on the new certificates.

The assets base of the two banks is also huge, with billions of pounds worth of deposits, Hassan said. Geneina concurred, stating that the total deposits in the banks amount to some LE6 trillion, 45 per cent of which is deposited in the NBE and Banque Misr.

Of this sum, LE500 billion is invested in certificates maturing this month. The remainder includes current, savings, long-term, or certificates of deposit accounts the interest on which is very low and thus compensates for the high rate on the vewly introduced CDs.  

Geneina added that banks make gains from the  substantial margin between the interest paid out by the banks on deposits, on average of 15 per cent, and that received on loans, currently hovering around 22 to 23 per cent.

There is also the commissions which the banks get from all kinds of transactions.

In addition, Geneina expects the banks’ revenues to be bolstered by an imminent increase in interest rates by the Central Bank of Egypt (CBE).He put the hike between 3-5 per cent.

* A version of this article appears in print in the 11 January, 2024 edition of Al-Ahram Weekly