The Central Bank of Egypt (CBE) has allowed banks working in the domestic market to direct part of their proceeds denominated in US dollars to cover customers’ temporarily overdraft accounts.
According to the CBE’s instructions received by banks on Tuesday, after covering imports on essential goods banks can direct 50% of their hard cash towards covering overdrafts on accounts.
Tamer Youssef, the head of the treasury department at a foreign bank operating in the Egyptian market, said that banks’ proceeds in US dollars are prioritised to cover imports of essential goods. He added that the surplus is split in halves, of which half is sold on the interbank market, while the other half is channeled to cover imports of non-essential goods and overdrafts on customer accounts.
In January 2013, the CBE had allowed banks to grant clients temporary facilities in foreign currencies until more hard cash is supplied to facilitate imports.
Since the beginning of 2016 until the end of March, the CBE posed two exceptional tenders worth $2.5bn to help banks cover these facilities. After the two tenders, about $2.5bn worth of facilities remained exposed.
This amount has doubled since March, where banks continued granting facilities to importers of basic goods and medicines. Some experts estimate the standing size of overdraft accounts at $5bn.
According to Youssef, covering these facilities now is owed to clients’ willing to buy US dollars at current rates to cover their overdraft accounts or wait for the greenback to decline.
He stressed that the CBE’s instructions do not allow banks to cover open currency positions, but only customers’ temporary overdraft accounts.
One day prior the flotation decision, a prominent banking source had told Daily News Egypt that a major problem must be solved before the CBE devalues or floats the national currency: overdraft accounts.
The source noted that the devaluation of the pound against the dollar before customers pay their dues to banks will lead to huge losses, as they will be forced to buy US dollars at prices higher than the old official rate on which they carried out their import deals.
According to a banker working in the treasury sector on the local market, risks of floating the pound is endured only by clients, where contracts between clients and their banks provide that if a temporary overdraft account is exposed, only the client is obligated to cover it using their own resources.