Monday 09 January 2023
I wrote – Manal Al-Masry:
5 banks intend to hold meetings during the current week to discuss increasing the interest rate on savings and retail banking loans such as (personal and car loans), as well as studying the negative consequences of the high-yield certificate with 25% interest in Al-Ahly and Egypt Banks on customers withdrawing their savings in favor of the two banks.
Last Wednesday, Al-Ahly Bank and Misr Bank surprised the market with the decision to offer a one-year savings certificate with an annual return of 22.5% that is spent monthly and 25% annually that is spent at the end of the certificate period, and collected proceeds that exceeded 119 billion pounds during the first 5 days of its issuance, according to media reports.
50% of the proceeds of the certificate came, 25% from breaking certificates in the two banks, and 50% money from other banks and waiving the dollar, according to what Yahya Aboul Fotouh, vice president of the National Bank, told Masrawy earlier.
Banks feared that customers would break certificates and deposits and transfer them to the benefit of the two banks, after the Central Bank’s decision to oblige them to raise the interest rate on embedded loans to prevent some from profiting from the certificate by 25%, which means that they will not be able to retain customers.
And the banks approved the instructions of the Central Bank obliging them to raise interest rates on lending to customers by guaranteeing savings certificates by no less than 24.25% (instead of 19.75% previously) to prevent profit from new certificates with a return of 25% in Al-Ahly and Egypt Banks.
This procedure required banks to adjust the pricing policy in order to calculate interest on certificates at 7% above the price of the certificate, instead of 2%.
Mohamed El-Etreby, Chairman of Banque Misr, said that no bank other than Al-Ahly and Misr can offer a 25% certificate due to the high cost of operating it and its negative repercussions on the decline in the bank’s profits.
An official source at Banque du Caire said that the bank intends to hold a meeting within two days to discuss increasing the interest rate on personal loans (and deposits and savings accounts) and monitor customer movements to break certificates and deposits in favor of the high-yield certificate of 25% in the two government banks.
He explained that measuring the extent of the risk of clients withdrawing their deposits and breaking certificates at Banque du Caire will show its effects after a working week has passed in banks, and it is difficult to determine it quickly, as the certificate has only been issued for a few days, including the last two working days for banks last week.
Al-Ahly Bank and Egypt opened 272 branches exceptionally during the bank holiday on Friday and Sunday (which was suspended in banks on the occasion of Christmas celebration) to facilitate customers by allowing the purchase of the 25% certificate and the purchase of dollars.
An official at Al Baraka Bank Egypt told Masrawy that the bank will hold a meeting this week to discuss increasing the interest rate on certificates, deposits, and savings accounts, while excluding offering a certificate with a 25% return due to its high cost and the difficulty of employing it in loans or other deposits at the same price.
He explained that clients’ breaking of certificates in the bank during Wednesday and Thursday was very weak, as some prefer to invest in 3-year variable-return certificates, on which interest currently reaches 17.25% annually.
The source stated that, in addition to that, it contributes to the quality of Al Baraka Bank’s clients, which operates under an Islamic bank license, and tend to save in banks that spend the return in accordance with Sharia, as Al Baraka Bank is one of 3 Islamic banks operating in Egypt subject to the supervision of the Central Bank.
Sources from the Industrial Development Bank and Med Bank said that the ALICO committees of the two banks will hold meetings this week to discuss raising the interest rate on deposits, savings accounts and personal loans, as well as monitoring the size of the negative consequences of some customers withdrawing deposits and breaking certificates in favor of the 25% certificate, according to the statement. What is expected.
The sources indicated that the risks of customers transferring their deposits and breaking the certificate exist in favor of 25%, especially after the Central Bank obligated the banks to increase the interest rate on embedded loans (certificates and deposits) to a minimum of 24.25% to prevent customers from profiting from the return difference in the two certificates.
The increase in the interest on the included loans will be reflected in the difficulty of banks retaining their customers and in increasing the withdrawal of their savings in favor of the two banks, according to the sources.