Egypt Bank Liquidity Seen Improving After Pound Devaluation

Egypt’s move to devalue its currency and eliminate restrictions on foreign-currency deposits should boost liquidity in the banking industry, according to consulting group IHS Inc.

International-currency commitments to Egyptian banks fell below 20 percent of total deposits at the end of the third quarter of 2015, from about a quarter before the restrictions were imposed in February last year, according to a report by IHS banking risk analyst Alyssa Grzelak.

Egypt, grappling with a dollar shortage, devalued its currency by about 13 percent at a local sale of greenbacks on Monday and said it would adopt a more flexible exchange rate. The central bank will use any tool to safeguard stability in its foreign-exchange market in the medium term, it said in an e-mailed statement.

Restrictions on dollar deposits were introduced to crack down on black-market trading and preserve reserves, although the measures were blamed for exacerbating a foreign-currency shortage that threatened the country’s economic recovery.

Egyptian stocks entered a bull market after the central bank’s announcement. Shares in Commercial International Bank Egypt SAE, the nation’s largest lender, have risen by about 6 percent since the government announced the changes. Egyptian Financial Group-Hermes Holding Co., the Arab world’s biggest listed investment bank, have risen 28 percent.

Capital Ratios

Still, the depreciation will likely weigh on capital adequacy ratios, Grzelak said, as foreign currency loans are converted into Egyptian pounds for capital ratio calculations.

International Monetary Fund Egypt Mission Chief Chris Jarvis welcomed the move to a more flexible exchange rate, saying it “would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism and attract foreign direct investment.”

Egypt’s central bank is offering $1.5 billion to local lenders in an “exceptional” sale on Wednesday to cover importers’ debts, the bank said in a statement on its website, without saying how it is funding the sales. It will mark the fourth unusual sale this month and bring the total to about $2.4 billion, or about five times the regular monthly amount offered.

The country’s two biggest state-run banks, Banque Misr and the National Bank of Egypt, offered certificates of deposits paying 15 percent interest -- on condition that clients exchange dollars to pounds to invest in them. Both said they would offer a call option to hedge the currency exposure of foreign investors seeking to invest in Egyptian Treasury bills.

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