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To prevent “profiteering” with the 25% certificate.. Banks raise the loan interest rate

02:51 PM

Thursday 05 January 2023

I wrote – Manal Al-Masry:
Bankers in some banks told Masrawy that banks raised interest rates on lending to customers with the guarantee of savings certificates, to prevent profiting from new certificates with a 25% return at Al-Ahly and Egypt Banks.

According to the sources, the banks will raise the interest on lending guaranteed by certificates to more than 7% over the lending rate at the Central Bank (corridor) instead of increasing the interest based on the certificate rate, which ranged between 2-3%.

The Central Bank instructed the banks – through verbal instructions, to increase the burden of the interest rate on borrowing by guaranteeing certificates by 7% above the borrowing rate at the Central Bank (Corridor) to address attempts by customers to profit from 25% certificates in Al-Ahly Bank and Egypt, which led to banks suspending borrowing yesterday until examining the consequences decision, according to sources.

And the interest rate on borrowing at the Central Bank is currently recording 17.25% – and according to the decision, the burden of increasing the prescribed interest by 7% will be added to lending clients with the guarantee of certificates – so that the cost of borrowing will reach 24.25%.

The cost of the burden of borrowing on customers with the guarantee of certificates in banks, after the Central Bank’s instructions, will rise to 24.25%, which is a high cost that increases banks’ fears of customers withdrawing their deposits in favor of government bankers, according to bankers.

Al-Ahly Bank and Misr Bank surprised the market on Wednesday, with the decision to offer a one-year savings certificate with an annual return of 22.5%, which is spent monthly, and 25% annually, which is spent at the end of the certificate’s term, which is the highest at the level of the banking system in many years.

Some banks were resorting to keep their customers from withdrawing their deposits permanently in favor of high-return certificates in Al-Ahly Bank and Egypt Bank, to disbursing loans guaranteed by certificates with an increase of only 2% or 3% above their return rate to buy certificates in the two government banks, thus allowing customers to make a profit from the return rate between the price of Certificates without the need to break certificates and withdraw deposits, which is what the Central Bank wants to prevent.

The bankers said that the banks will not be able to keep up with the National Bank of Egypt and the National Bank of Egypt by issuing certificates of 25% due to their high cost and the difficulty of employing them, which may lead to the loss of customers, especially after the decision to increase the burden of borrowing by 7% above the lending rate at the Central Bank.

High interest rates on triple saving certificates in banks range between 14% and 17.25%, which is much lower compared to 25%, which puts banks in a difficult challenge.

Mohamed El-Etreby, President of Banque Misr, said, in a telephone interview yesterday with the “Happening in Egypt” program with the journalist Sherif Amer, that “no bank other than Al-Ahly and Egypt can offer the 25% certificate because of its high cost, and his bank will not continue to sell the high-return certificate to customers.” For weeks, not for months.

A member of the board of directors of a bank said that the Central Bank’s directive yesterday not to grant loans in return for the deposit and transfer the loan to new certificates in Al-Ahly Bank and Egypt, after increasing the burden of borrowing, will lead to “customers breaking their old certificate, and therefore the customer will lose the fine for breaking, and bank deposits will decrease.”

From his point of view, he believes that this stage is the most difficult point in today’s procedures, because in the past, banks used to grant customers who wished to break their deposits a loan with the guarantee of the deposit, and left them to go to subscribe to certificates with Al-Ahly and Egypt, and therefore the banks did not lose or decrease the volume of their deposits, but rather they were You earn the lending interest, and Al-Ahly and Egypt bear the high interest cost of the new certificate.

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