Egyptians Line Up for Cash as Banks Open, Currency Plummets to 2005 Low

Hundreds of Egyptians queued outside banks to withdraw funds as lenders opened for the first time in more than a week amid protests demanding the ouster of President Hosni Mubarak. The pound dropped to the lowest level since 2005.

At a Cairo-based branch of Commercial International Bank Egypt SAE, the nation’s biggest publicly-traded lender, one man stood at the main door taking names of customers. “Banks need to open more branches,” Mahmoud Eliwa, a 68-year-old retiree who wanted to withdraw 5,000 pounds, said in an interview outside the bank. Eliwa left after learning he needed to wait for about 100 people before him.

The central bank moved 5 billion pounds ($854 million) of cash into the financial system as depositors gained access to their savings. The regulator, which has $36 billion in reserves and guarantees deposits, used military cargo planes to bring in the funds, Governor Farouk El-Okdah said yesterday on state-run television.

The demonstrations, which left at least 300 people dead according to the United Nations, roiled financial markets worldwide and sent yields on Egyptian bonds higher. The stock market remained closed for a sixth day after the benchmark EGX 30 Index tumbled 16 percent in the week to Jan. 27.

Weakening Currency

The pound weakened 1.3 percent to 5.9330 against the U.S. dollar, the lowest level since January 2005, at 5:07 p.m. in Cairo, from 5.857, according to data compiled by Bloomberg.

The central bank published on its website a list of more than 200 bank branches resuming operations today between 10:00 a.m. and 1:30 p.m. Customers are allowed to withdraw up to 50,000 Egyptian pounds and $10,000 a day.

The government plans to sell 15 billion pounds in treasury bills tomorrow after canceling last week’s auction as protests against Mubarak intensified. Yields on Egypt’s bills may surge about 30 percent, said Shahinaz Foda, the head of treasury at BNP Paribas Egypt. Credit Agricole CIB expects the pound to slump 20 percent in the “short term.” The currency’s three- month non-deliverable forwards rose to a record last week, suggesting the currency may fall more than 7 percent against the dollar.

Egypt’s stock exchange will remain shut until at least Feb. 8, communications manager Hisham Turk said in a telephone interview today.

Treasury Bills

The central bank postponed the sale of 4 billion pounds planned for Jan. 30 after raising 2.5 billion pounds on Jan. 27. The average yields on the sale of 182-day bills jumped 40 basis points to a one-year high of 10.6 percent, according to data compiled by Bloomberg.

The bank plans to auction 8 billion pounds in 91-day bills, 5 billion pounds in 182-day bills and 2 billion pounds in 273- day bills, according to data compiled by Bloomberg. The bank will announce the results Feb. 8, Deputy Governor Hisham Ramez said yesterday.

Yields on three-month treasury bills should be “not less than” 12.5 percent in upcoming auctions, up from 9.5 percent last month, Cairo-based Foda said yesterday. The yield on the one-year bills may climb to 14 percent from 10.6 percent, she said.

Public Spending

In an attempt to placate the protesters, newly appointed Finance Minister Samir Radwan reiterated yesterday that the government won’t reduce subsidies even if global prices of food and commodities rise. Public spending will be used as a tool to “achieve social justice,” he told a news conference in Cairo.

An increase in public spending may push the budget gap to “double digits” in 2011, compared with 8.1 percent in the fiscal year that ended in June, rating company Standard & Poor’s said last week after lowering the country’s credit ratings a notch to two levels below investment grades. Fitch Ratings and Moody’s Investors Service also cut Egypt’s ratings.

The unrest sent the yield on the country’s 5.75 percent bond due in April 2020 to a record 7.2 percent on Jan. 31. The yield has dropped 62 basis points since and ended the week at 6.59 percent. The cost of insuring Egypt’s debt for five years with credit-default swaps soared to 430 basis points on Jan. 28, the highest since April 2009. They closed at 380 on Feb. 4, CMA prices in London show.

Not Defaulting

Radwan said Egypt will honor its debt obligations and urged foreign investors to have confidence in the country. “All the bond obligations, everything will be honored on time,” Radwan said in a Feb. 4 telephone interview from Cairo. “We are not defaulting on any obligations.”

Banks held 937 billion Egyptian pounds in deposits in November, according to preliminary data published on the central bank’s website. Of that, households held 505 billion pounds, while private companies held 124 billion, the data show. The country’s banks have an average loan-to-deposit ratio of about 53 percent, Mohamed Barakat, head of the banking association, said in an interview on Jan. 30.

Some Egyptians, such as 32-year-old pharmacist Moustafa Awwad, said they won’t rush to take their money out.

“I have enough cash and the central bank guarantees all deposits,” he said in a telephone interview from Cairo. “Having money at the bank is safer than holding cash.”

Pound Forwards

Egypt’s three-month non-deliverable pound forwards strengthened 0.2 percent to 6.325 per dollar on Feb. 4 from 6.34 the previous day, according to data compiled by Bloomberg. The contracts reflect bets the currency will weaken 7.4 percent in three months from the spot rate of 5.8570. A drop in the pound may prompt the central bank to intervene, John Sfakianakis, chief economist at Banque Saudi Fransi Credit Agricole Group, said in a note Feb. 3.

“Over the short term we expect the Egyptian pound to fall by 20 percent, which would require the central bank to intervene on several occasions,” he wrote. “The drawdown in reserves would be a crucial factor in supporting the Egyptian pound, but increased political tensions, a run on local banks as well as expected dollarization of some of the deposits will impact the short-term currency outlook.”

The central bank doesn’t have a target range for the pound, Ramez told CNBC Arabiya today. The central bank intervenes in “rare” cases, he said.

To contact the reporter on this story: Alaa Shahine in Cairo at asalha@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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