Egyptian banks are locked in a race for deposits. Some certificates now pay more than 20% — above the central bank's own corridor held at 19 to 20% for three straight meetings. The market reads it this way: lock in funding now before the cutting begins on August 20th. But beneath the race for money sits a structural question — Egypt needs long-term finance for housing, industry, and infrastructure, yet much of the funding is short-term, expensive, and quick to reprice. Joining me now is Dr. Wael Abdallah, Associate Professor of Finance at The American University in Cairo School of Business and non-executive board member at Beltone Holding. Welcome to the show.
Welcome, Bassel.
Banks are paying about 20% for deposits while the corridor sits at 19%. Is that a symptom of weakness or smart positioning ahead of rate cuts?
Both. Banks are very nervous about losing deposits, so they are paying extra to keep them. But it is also smart — they are locking in cheap funding before rates fall. The bottom line is that banks are preparing for tough times ahead. When you have this gap between the interest revenue from loans and the interest paid on deposits, that is the interest margin squeeze we are suffering right now. All banks are trying to retain deposits at higher rates, and paying even more to do so. That will affect profitability negatively — which we will see in Q3 and Q4 of this year.
What is the clearest warning sign that an institution is funding long-term assets with money that can leave or reprice too quickly?
Simply this: when a bank takes a deposit that can leave tomorrow but lends money for five years, that bank is in serious trouble. Another red flag is when bank flows fall fast but loans stay flat — that means other banks are struggling. These are the signals that should trigger alarm for both the central bank and the institutions themselves. Maturity mismatch is the core vulnerability.
If the central bank starts cutting on August 20th while banks are still carrying certificates above 20%, what happens to net interest margins?
Net interest margins will be affected negatively. When rates fall, banks make less profit from lending. Investors need to look for banks with other sources of revenue. The advice for equity investors is clear: sell weak banks now and hold strong ones — those with loyal customers and multiple income sources that can withstand the margin compression.
Banks are steering savers into three-year variable rate certificates that reprice downward with every cut. Is that intelligent asset-liability management or simply transferring interest rate risk onto households?
It is very unfair to savers to have a three-year certificate with a fixed rate that is going to fall. Banks keep the upside if rates stay high but customers lose when rates drop. This makes people distrust banks and pull money out of the banking sector entirely.
The Treasury's first floating rate notes are essentially the government refusing to lock in today's rates. What signal should Egyptian companies take from that?
The government is saying rates are too high to lock in. Companies should listen. Stay flexible with short-term borrowing rather than long-term fixed rates. Big rate cuts are probably coming soon, and August 20th could be a significant turning point in monetary policy.
Egypt needs long-term capital for mortgages, manufacturing, and infrastructure. What is missing — longer-term deposits, securitisation, pension capital, or a real corporate bond market?
The root issue is behavioural. Egyptians do not generally save for the long term — they fear currency loss and do not fully trust banks until inflation is controlled. That is the key word. When people trust money again and trust the Egyptian pound, confidence in long-term banking investments will return. Right now, whenever there is a rate cut signal, people immediately look for safe-haven alternatives — gold, real estate, foreign exchange. Getting them back into long-term deposits requires macroeconomic stability first.
What single regulatory reform would most improve Egypt's ability to fund long-term growth without repeatedly leaning on short-term, expensive money?
We need to create a government bank dedicated to mortgages and long-term projects — one that can borrow cheaply and lend at a fair rate. Or alternatively, allow banks to sell mortgages to investors so that long-term loans are matched with long-term funding. The key issue is maturity mismatch. Using short-term deposits to finance long-term projects will lead to disaster for the banking sector and could ultimately threaten the financial system in Egypt.
For ordinary households watching this — families wondering what to do with their savings as rates fall — what is your advice?
The best way right now is mutual funds — a pool of money managed by professionals. Beyond that, consider gold certificates rather than physical gold as a commodity. Invest in safe-haven assets until the geopolitical risks resolve and conditions normalise. And everything will be fine — we hope and we wish that we return to normal life very soon. Yesterday there was also an earthquake.
Everything is shaking.
Yes — the economy is shaking and everything is shaking.
Thank you very much, Doctor Wael. It has been a great pleasure having you with us.
