New USD CDs and Loans: What does it mean for Egypt's economy?

CAIRO - 28 July 2023: Banque Misr and the National Bank of Egypt (NBE) recently introduced personal loans and USD certificates of deposits (CDs) for Egyptians working abroad. The purpose behind issuing these CDs and loans is to attract foreign currency.

NBE’s Deputy Chairman Yehya Aboul Fotouh said in televised statements that the bank expects to draw more than $4 billion in fresh foreign currency from the issuance.

Both banks are offering personal loan product for Egyptians working abroad, with a loan value of up to LE 3 million and a repayment period of up to four years. The banks are also offering mortgage loans for Egyptian expatriates, in return for a 20 percent down payment to be paid in foreign currency.

Many Egyptians live and work abroad, and they often send money back to their families in Egypt to support them financially. The Egyptian government started to recognize the potential of this group of customers and have started catering products suitable for them.

“If people deposit their USD, they may be encouraged to invest via the loans they will get against the deposit, which in theory should have a positive impact on the economy. However, there is a trust issue in the market, if people trust the banking system and believe in some form of economic recovery in the near future, they would give up their hidden USD for the attractive returns,” Hussein Kamal, Egyptian Economist, told Egypt Today.

Egypt's main sources of foreign currency are: exports, remittances (including loans and grants), tourism, foreign direct investment (FDI) and Suez Canal. As a major source of foreign currency for Egypt, remittances can help increase foreign reserves, which can be used for investment and financing activities. Thus, offering loans to Egyptians living abroad presents an opportunity for Egyptian banks to attract foreign currency into the country.

Egypt has been facing a foreign currency shortage due to the Russia-Ukraine conflict, rising inflation, decline in remittances and in foreign investment.

Egyptian workers’ remittances drastically decreased by 26.1 percent to $17.5 billion in the first three quarters of 2022/2023, down from $23.6 billion in the same period for the previous fiscal year.

“Introducing USD denominated CDs are a new phenomenon in Egyptian monetary policy. Traditionally, the focus was on high-yielding local currency CDs to absorb liquidity in the market and contain inflationary pressures. This comes to potentially attract USD flows from the parallel market to shore up FX liquidity in the banking system and ease the FX crunch Egypt has been experiencing in the last couple of years,” Kamal added.