Currency crisis in Egypt.. This is what will happen to the banks when the value of the pound is devalued again!

 Currency crisis in Egypt.. This is what will happen to the banks when the value of the pound is devalued again! 

Egyptian pound has been under great pressure recently, as authorities seek to obtain liquidity amid high demand for foreign currencies by importers and other companies.

While the pound currently trades at just under 31 to the dollar at banks, on the black market it trades at around 38 to the dollar.

In this context, emerging markets economist Ziad Daoud told Bloomberg: The Egyptian pound has lost nearly half its value against the dollar since March 2022, despite the great support from the Central Bank and the banking system. It would have been further weakened if this support were absent. Given their exposure to the dollar, banks are likely to suffer when Egypt goes through another round of currency devaluation.”

The central bank has devalued the currency three times since March 2022, helping secure a $3 billion IMF rescue package. Egypt is now waiting for the program to be reviewed by the International Monetary Fund after the review was delayed.

The pound has stabilized in recent months despite government statements that it is shifting to a more flexible exchange rate system after years of currency control, a policy that has depleted the country’s reserves, according to what “Bloomberg” reported, and was reviewed by “Al Arabiya.net.”

Net income from foreign assets held by Egyptian commercial banks posted a record deficit in June, as a lack of inflows worsened the financial conditions of a country already suffering from the worst hard currency shortage in years.

The gap between lenders amounted to $17.1 billion, compared to $14.5 billion in May, according to data issued by the Central Bank. These data come as a result of a decrease in banks' assets of $1.7 billion and an increase of about $950 million in their liabilities.

While the decline in the exchange rate reflects the financial cost that Egypt bears in maintaining the stability of its currency instead of allowing it to adapt and help the economy confront external shocks, according to the chief emerging markets economist at Bloomberg Economics, Ziad Dawoud.

According to central bank data, the total net foreign liabilities of the banking system, including the regulator, amounted to $27.1 billion, which also represents a historical high. Thus, the total net foreign assets of the banking system continue to record a deficit for the 19th month in a row, that is, since January 2022.

Naeem Brokerage said, according to Bloomberg, that the deficit “can be explained by a combination of factors including below-normal remittances and lower exports, with a sharp decline in liquefied natural gas exports, and a rise in non-oil imports.”

The International Monetary Fund, in a report issued last January, raised concerns about the decline in banks’ foreign assets. While the central bank “may occasionally intervene in times of excessive exchange rate volatility,” according to the IMF, “there will be no recourse to foreign exchange interventions or the use of banks’ net foreign assets with the aim of stabilizing or ensuring the level of the exchange rate.”

To address this problem, the IMF said the central bank “will strictly enforce restrictions on the net foreign exchange positions open to commercial banks.” The regulator will also consult with IMF staff if banks' total non-bank assets show a cumulative decline of $2 billion over 3 months, according to the Washington-based lender.

In an attempt to support dollar inflows, Egypt's largest state-owned lenders last week began offering dollar-denominated certificates of deposit at a high interest rate to foreigners and locals.