Outstanding balance of treasury bonds declines to EGP 12.1bn at end of January: Finance Ministry

Banks operating in the local market are the largest investors in government debt instruments that are offered to cover the state budget deficit

The size of outstanding balances of treasury bonds in local currency owed by the government declined to EGP 726.27bn as of the end of January, compared to about EGP 738.35bn in December 2016, a decrease of EGP 12.1bn.
The ministry indicated, in a recent report, that there are two types of bonds in Egyptian pounds; the first being coupon yield bonds worth around EGP 687.366bn, at an average rate of return of 12.99%.
These bonds were offered from 12 February 2008 until 6 September 2016, and their interest rates range between 9.15% and 17.2%, on 3 to 10 years maturity.
The second type, zero coupon bonds, recorded a balance of EGP 38.908bn, at an average interest rate of 12.622%.
Zero coupon bonds were offered between 11 August 2015 and 4 October 2016. The average interest rate on these bonds is between 11.822% and 16.514% on 18 months.
The payment of balances for coupon yield bonds is scheduled between 16 February 2017 and 5 July 2026, while zero coupon bonds are set to be paid between 7 February and 3 April 2018.
The largest investors of treasury bonds and bills are banks operating in the Egyptian market. The government puts forward the treasury bonds and bills on a regular basis to cover the state budget deficit.
Treasury bonds and bills are issued through 15 banks, which are the main dealers in the primary market. These banks resell a portion of these bills and bonds in the secondary market to retail investors, as well as to local and foreign institutions.
The banks participating in the system include the National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank (CIB), Citibank, HSBC Egypt, Misr Iran Development Bank, Qatar National Bank (QNB), Crédit Agricole Egypt, Moroccan Attijariwafa Bank (formely Barclays Egypt), AlexBank Intesa Sanpaolo, Arab African International Bank, Export Development Bank of Egypt, Suez Canal Bank, and Arab Bank.
It is noteworthy to mention that the World Bank criticised, in a recent report, the continuation of the Egyptian government to rely on banks to finance the state budget deficit, saying that to rely on banks in financing the growing deficit in the government budget, besides the lack of foreign currency, negatively affects the growth of the lending activity of banks.
A number of bank leaders said that banks are not happy to invest their money in fixed income instruments, especially government debt instruments, but they are compelled to do so because they are guaranteed investment instruments while facing a lack of employment opportunities in the market.
They told Daily News Egypt that banks deal with the financial opportunities available to them, and if there are financial opportunities granting a better return than the return on investment in debt instruments, it will surely be more beneficial for banks. It is better for banks to finance customers and entrepreneurs in order to get commissions and benefits and achieve larger profits.