By Ahmed Kamel Lower interest rates will likely lift Egypt's bank credit, scaling down investment cost for the business community. Higher interest rates following the currency float have taken their toll on the bank credit since November 2016, analysts say. The monetary policymakers are trying to boost the investment climate through slashing interest rates. "The lending rate hasn't been bad as economic growth reached five per cent of gross domestic product in 2017. Growing construction and real estate sectors, in addition to the national mega-projects which were carried out, mean that funding has not stopped," said financial expert Tarek Metwally. The Monetary Policy Committee of the Central Bank of Egypt (CBE) has slashed key interest rates by 200 basis points, or two per cent since February 15. Between November 2016 and February 2018, the MPC raised the rates by 700 basis points in a bid to combat inflationary pressures. The deposit and lending rates currently stand at 16.75 and 17.75 per cent respectively, CBE data showed. Deposits at the local banks hit LE3.32 trillion (around $188.6 billion) at the end of December 2017, CBE data showed. The bank deposits jumped 20.58 per cent, or LE568.25 billion, between January 2017 and the end of December 2017. On the same period, bank loans rose by 12.3 per cent to LE1.453 billion at the end of December 2017, CBE data showed. Economists say high interest rates raise the cost of money for both lenders and borrowers. Banks buy funds from depositors at a higher rate, and consequently investors will also get loans at an increased price. Bank loans rose by LE390 billion in 2016, but grew by only LE146 billion in 2017, CBE data showed. "The flotation has positively affected credit as exports rose. Exports require an increase in production, which needs funding," Metwally said, noting that lower interest rates would boost credit. The loan-to-deposit ratio (LTD) stood at 44.2 per cent at the end of December 2017, down from 48 per cent in January 2017, CBE data showed. Lower rates are deemed an ideal solution to push private investment and increase the LTD. Economists say LTD should exceed 60 per cent to indicate acceptable investment rates and robust economic growth. Although the increase in deposits outpaced the growth of bank loans, the profits of banks have taken an up-trend over the past four years, due to the resilience of the banking sector. "Despite a small decline in the banks' high net interest margin, pre-provision income was supported by fees and commissions and higher loan volumes," the International Monetary Fund (IMF) said in its January report on Egypt.
