The losers and winners of the 25% certificate… What is the fate of gold and real estate?

6:19pm

Friday 06 January 2023

I wrote – Manal Al-Masry:

Al-Ahly Bank and Egypt have started selling a one-year savings certificate with an annual yield of 22.5%, which is spent monthly, and 25% annually, which is spent at the end of the certificate term, which is the highest at the banking system level in many years.

While the certificate is believed to have large advantages in the face of inflation, other sectors may be impacted by offering this yield to investors and holders of deposits or financial surpluses.

In the following lines, we present the winners and losers of issuing a certificate with an interest rate of up to 25%, according to experienced bankers and economists.

losers

Manufacturers and service providers

The bankers confirmed to Masrawy that the 25% certificate may induce producers or investors to freeze their business with the aim of investing in the 25% certificate, as there is no project or investment that generates a high profit by 25%.

The tendency of producers and investors to invest in the certificate can lead to an increase in the inflation rate (increase in prices) due to a lack of sufficient production and a shortage of raw material supplies.

The unemployed

The effect of the 25% high yield certificate on the attitude of producers and investors to prefer investing in it rather than continuing their business leads to an increase in the unemployment rate.
The unemployment rate increased to 7.4% during the third quarter of 2022, compared to an average of 7.2% during the second quarter of 2022.

Loan holders secured by certificates

After issuing a certificate with an interest rate of 25%, the National Bank and Banque Misr raised the interest rate to a minimum of 24% on guaranteed loans.

And the National Bank of Egypt and the Bank of Egypt have agreed to raise the interest rate on loans against the guarantee of certificates and deposits to a minimum of 24%, with the aim of limiting customers’ attempts to return the loan proceeds in the purchase of the certificate at 25%, customer service employees at Masrawy said.

Certificate-backed loans are one of the options available to customers to obtain cash loans up to 95% of their total value, with the aim of repaying the loan proceeds in the purchase of a car or repaying the proceeds for buy another certificates or durable goods such as electrical and electronic tools.

Migration of money from competing banks

The presence of a high yield certificate in Al-Ahly Bank and Egypt creates pressure on the ability to keep customers’ savings in favor of the 25% certificate in light of the inability of any of the banks to offer this yield to their customers due to the difficulty of employing it and its negative impact on their bottom line due to its high cost.

Some banks fear that some of their customers will ask to break their deposits or certificates after the decision to raise the interest rate on secured loans to at least 24%, which motivates some customers to transfer their deposits in favor of the two banks.

the government

The government is among the hardest hit by the 25% certificate due to the difficulty of attracting liquidity at low interest rates by selling treasury bills, prompting it to raise the interest rate on new debt issues, which increases the burden interest on it.

Treasury bills are one of the public debt instruments, according to which the Ministry of Finance borrows in Egyptian pounds to meet its financing needs for the general state budget, and in exchange for the money it pays interest.

Yesterday the Finance Ministry decided to raise the interest rate on an auction for treasury bills to 21.490% for the first time in about 5-and-a-half years, according to data published on the central bank’s website.

Stock market investor

The 25% certificate is expected to lead to the withdrawal of funds from stock market investors due to its high yield relative to the high degree of risk in the capital market.

However, the issuance of the certificate is expected to stop soon, within weeks, not months, according to Mohamed El-Etreby, chairman of Banque Misr.

Gold and real estate traders

The certificate is expected to attract savings from clients investing in gold and real estate due to the high yield offered on it.

Gold prices are seeing a significant recovery lately, and prices in Egypt have reached unprecedented levels, and some expect gold’s upward trend to continue and some indications to emerge that of an increase in global demand for a state of economic recession, and therefore greater reliance on safe-haven assets such as gold.

Winners

– Depositors

Clients are most profitable by having a high yield certificate of 25%, which helps to increase their profits and get a monthly return which helps them pay for their daily expenses after the high rate of inflation (price increase).

Clients will need to benefit from the 25% certificate through the existence of new savings and difficulty winning existing certificates to return their proceeds in the high yield certificate.

Dollar holders

The certificate presents a 25% opportunity for dollar holders to sell it in exchange for buying the certificate, as well as motivating Egyptians working overseas to sell their remittances to buy back a certificate at a rate of return between 22.5% for a monthly exchange period, and 25% for an annual exchange period, or by depositing it into the client’s account at the end of the certificate’s validity period.