Audi‘s 2011 Investments In Government Instruments Register EGP 5 Bln

Bank Audi’s investments in government debt instruments rose to EGP 5 billion; of which EGP 4.5 billion in treasury bills, and EGP 500 million in government bonds, Moustafa Gamal, head of treasury at Bank Audi, said.

Treasury department is the second main contributor in the bank’s profit after credit administration. Gamal added in an interview with Amwal Al Ghad that treasury department will play an important role in proving a stable profit for the bank in 2011/2012.

60% of the bank’s investments in government debt instruments are in local currency and 40% of which are in foreign currency.

Given the political turmoil, economic recession and the drop in Egypt’s dollar resources, Egypt relied on local financial institutions to finance the budget deficit that reached EGP 144 billion and that affected interest rates on government debt instruments that rose to 16%, up from 10.5% before 2011’s revolution, Gamal noted.

As cost of local debt increased, foreign borrowing became an urge to avoid a potential crisis in the current period, head of treasury department at bank Audi affirmed.

The increased interest rates on government debt instruments resulted from the economic turmoil that followed the revolution as foreign investors sold debt instruments. Accordingly, repo market witnessed repurchases of up to EGP 20 billion weekly, as a result of a liquidity decline due to investing in treasury bills. Activating repo process contributed in averting a liquidity crisis or a high increase in interest rates, Gamal added.

Gamal predicted that interest rates on treasury bills will increase, unless the government reached an external loan agreement or foreign investors resume subscribing for government debt instruments.

Despite having high interest rates, banks’ investments in government debt instruments do not limit their funds for projects.  Banks focus on financing projects to market their retail banking products and to attract more customers. Gamal said expanding in investing in government debt instruments was a result of the low investments portfolio in 2011 because of the economic recession that followed the revolution.

Treasury department at Bank Audi uses the bank’s surplus to invest in government debt instruments to increase the bank’s return and profit, Gamal told Amwal Al Ghad.

Banks are not reluctant in offering dollar funds despite the increase of dollar currency against Egyptian pound. However, Central Bank of Egypt (CBE) set certain rules and conditions on the projects demanding dollar funds including providing yield in dollar currency, acceptable feasibility study, and good money flow.

Decline in credit rating s of banks investing largely in government debt instruments is a result of Egypt’s credit rating fall. Gamal concluded that this drop will only affect the banks in their foreign transactions.