Secured loans are getting pricier: The Central Bank of Egypt (CBE) has instructed allbanks to charge a minimum interest rate of 24% on secured loans, a banking source told Enterprise. The new rule that came into effect yesterday is intended to clamp down on the carry trade following the issuance of high-yield CDs by the country’s two largest banks, our source added.

Carry trading? In short, a carry trade is when you borrow money and then lend it on to someone else at a higher interest rate than you’re dishing out for the money in the first place. The differential between the cost of borrowing the money and the interest you get back from the borrower is the profit and is referred to as the “carry.”

The rationale: The move ensures that the new CDs sop up liquidity from the market rather thantrigger a migration of funds from other banks to the new certificates, our source said.

Background: Banque Misr and the National Bank of Egypt last weekend introduced two12-month certificates of deposits (CDs) with record-high yields — one with a single interest payment of 27% paid upon maturity and another that offers monthly payouts at a reduced 23.5% annualized rate. The issuance came after CDs worth around EGP 500 bn introduced by the two banks in January 2023 began maturing on Friday.

SOUND SMART- A secured loan is a type of loan where the borrower pledges an asset — suchas a house, car, or liquid asset — as collateral. In the case of a CD-secured loan, the loan is backed by a certificate of deposit.

ON THE DEPOSIT FRONT-

The two CDs have reeled in a combined EGP 45 bn in the four days since their release, Cairo 24 reports, citing two sources at Banque Misr and NBE. That’s half of what customers invested during the first three days that the 25% CDs were on the market in January 2023.

The breakdown: NBE captured the lion’s share of deposits, racking up some EGP 30 bn. BM attracted the remaining EGP 15 bn, BM chairman Mohamed El Etreby confirmed to the state-owned Middle East News Agency.

Endgame? The new CDs should draw in more than the EGP 500 bn raised last year, El Etreby said, stopping short of providing an estimate.

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