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Unstable dollar price behind fluctuation in banks' deposits, loans after flotation: CBE Most banking indicators experience a rise and fall every month because of revaluation of assets in foreign exchange
Banks' deposits and loans witnessed severe fluctuations following the Central Bank of Egypt's (CBE) decision to float the local exchange rate on 3 November 2016. According to a senior official in the CBE, this phenomenon is caused by the ups and downs of dollar price in the domestic market after the flotation, while it used to be stable during the period that preceded this decision. This impact is not limited to deposits and loans, but also affects all banking indicators, especially those in dollars. The official, who spoke on condition of anonymity, said that the banks make a revaluation of assets in foreign exchange, including deposits and loans, at the end of each month and put their equivalent in Egyptian pounds. The total deposits in banks operating in the domestic market, excluding the CBE, have jumped at the end of November 2016 to about EGP 2.714tn, compared to about EGP 2.224tn at the end of October 2016, an increase of about EGP 500bn. Meanwhile, the loan portfolios jumped to EGP 1.29tn at the end of November 2016, compared to about EGP 975.8bn in October 2016, an increase of about EGP 313bn. The CBE's official attributed this hike to the rise of the dollar against the pound after the flotation and to the revaluation of deposits and loans in foreign exchange based on the new exchange rate of the dollar. The following months witnessed extreme increases and declines in the value of deposits and loans in foreign exchange. According to the CBE, banks' deposits in foreign currency reached an equivalent of EGP 433.791bn at the end of October 2016, while the value of these deposits recorded the equivalent of EGP 858.274bn at the end of November 2016. The deposits amounted to the equivalent of EGP 860.651bn in December 2016 and EGP 900.734bn in January 2017, but they fell to the equivalent of EGP 753.568bn at the end of February 2017. They jumped again to the equivalent of EGP 874.742bn at the end of March 2017 and EGP 883.045bn in April 2017. The same case happened to banks' loan portfolios in foreign currency. The volume of loans in foreign currency reached the equivalent of EGP 286.74bn at the end of October 2016, while they recorded EGP 566.115bn at the end of November 2016 and then amounted to the equivalent of EGP 572.972bn in December 2016. In January 2017, loans reached the equivalent of EGP 583.138bn and then fell to EGP 476.272bn at the end of February 2017. Loans, on the other hand, jumped again to EGP 540.163bn in March 2017 and dropped to EGP 532.995bn a month later. According to a head of the treasury sector in one of the banks operating in the local market, the CBE determines a unified dollar price for all banks at the end of the last working day of each month, on which banks reevaluate their deposits and loans in foreign exchange. According to information obtained by Daily News Egypt, the last revaluation of deposits and loans in foreign exchange before the flotation was conducted based on an exchange rate of EGP 8.78 per dollar. This price jumped to EGP 17.9479 per dollar at the end of November 2016, EGP 18.2665 in December, EGP, 18.8148 in January, EGP 15.8214 in February, EGP 18.1396 in March, and EGP 18.0765 in April 2017. The latest report issued by the CBE a few days ago revealed that the total balance of loans to customers of banks, except the CBE, increased by about EGP 22bn in April 2017 to reach EGP 1.358tn compared to EGP 1.336tn in March 2017. According to the CBE, the loans granted to the government amounted to EGP 305.3bn in April, of which EGP 126.6bn in local currency and the equivalent of EGP 178.6bn in foreign currency. The report added that total non-government loans increased in April to EGP 1.05tn. Non-governmental loans in local currency amounted to EGP 698.3bn, distributed as follows: the agricultural sector accounted for EGP 73.6bn, the industrial sector for EGP 206.2bn, the commercial sector for EGP 79.4bn, and the services sector for EGP 179.7bn. Other sectors—including household, individuals, local non-profit organisations, and foreign entities operating in Egypt—accounted for EGP 225.6bn. According to the report, the total non-governmental loans in foreign currencies amounted to EGP 354.3bn, distributed as follows: the agricultural sector accounted for EGP 2.7bn, the industrial sector for EGP 173.1bn, the commercial sector for EGP 25.2bn, and the services sector for EGP 137.4bn. Other sectors—including the household, individuals, local non-profit organisations and foreign entities operating in Egypt—acounted for EGP 15.7bn. The CBE's report also revealed that the total deposits in banks increased by EGP 49.2bn at the end of April to reach EGP 2.918tn, compared to EGP 2.869tn in March. The report pointed out that the deposits in local currency increased by EGP 40.9bn to reach EGP 2.03tn at the end of April, compared to EGP 1.99tn in March, a growth of 2.05%. The volume of deposits in foreign currency also increased by EGP 8.3bn to reach EGP 883.04bn in April, compared to EGP 874.7bn in March, a growth of 0.9%. The CBE said that the total volume of government deposits at banks at the end of April 2017 recorded about EGP 504.67bn, of which EGP 309.842bn were in local currency and EGP 194.828bn in foreign currencies. The report added that the volume of non-governmental deposits amounted to about EGP 2.413tn, of which about EGP 1.725tn were in local currency and the equivalent of about EGP 688.217bn in foreign currencies. According to the CBE, the growth rate of total bank deposits in April was 42.3%, and this percentage amounts to 21.73% after excluding the impact of the flotation. The growth rate of deposits in local currency was only 25.5%, while the deposits in foreign currency recorded a growth of 114.6%, and this rate falls to only 5.4% after excluding the impact of the flotation. The CBE also asserted that the household sector accounted for 76.8% of total bank deposits, 81.1% of those in local currency, and 66.1% of those in foreign currencies. The volume of household deposits in banks amounted to about EGP 1.841tn at the end of January 2017, of which EGP 1.391tn were in local currency and about EGP 449.903bn in foreign currencies, according to the CBE.
