Banks compete for deposits as CBE holds rates steady

Egyptian banks are racing for deposits, but analysts disagree over whether the move marks a liquidity squeeze or a strategic reset. Local banks have ramped up competition for deposits, raising certificate yields to more than 20% despite the Central Bank of Egypt (CBE) holding rates steady for a third straight meeting on 9 July. With the central bank also absorbing far less liquidity through its weekly open market operations, bankers and economists are split over whether the scramble signals genuine funding pressure, a defensive repricing of deposits as savers chase higher-yielding alternatives, or a deliberate rebalancing engineered from an already-flush system.

A side effect of sound policy: Most sources trace today’s dynamic to the CBE’s retreat from financing the government. “The story began in March 2024, when the central bank started implementing a tighter and firmer policy regarding state financing,” says Al Ahly Pharos’ Hany Genena, noting the state cut its CBE borrowing by “about EGP 200 to 300 bn.” Since then, “the central bank has refrained from this type of financing, which we sometimes described as inflationary” — leaving banks to fill the gap.

Lenders are now retaining more of their FX inflows rather than selling them to the CBE for fresh liquidity. “We no longer see the previous liquidity surpluses,” Genena says, pointing to the interbank rate (CONIA) trading “near the upper limit [of the corridor], which indicates that banks have begun to compete strongly for the liquidity available in the interbank market.”

Competition for liquidity

“A gradual tightening of available liquidity” is how banking veteran and Alraya Consulting and Training Managing Partner Hany Aboul Fotouh reads the shift. For him, the bigger change is who banks are competing against, not the liquidity itself. He points to the CBE withdrawing just EGP 30 bn in open market operations on 7 July, “compared to much higher figures back in February and May,” as evidence, which pushed lenders like Banque Misr to raise certificate yields to 20.5%. He says that the Citizen Bond, yielding a net 17.75% annually, has drawn over EGP 7.7 bn since it launched in late February, while mutual fund assets jumped from EGP 316 bn to EGP 411 bn between end-2025 and March 2026 — flows that are “depleting a part of the monetary mass that traditionally headed toward bank deposits.”

“The customer today is more sensitive to yield,” says senior economist Ali Metwally. Banks are now competing against other financial instruments offered by banks, non-banking entities, and the government, like the Citizen Bond, he says. Still, he stops short of calling it a crisis, instead describing the transition as one from a “liquidity environment characterized by surplus, to one characterized by selectivity. Banks still possess strong surpluses, but some of them have become more cautious about retaining deposits.”

Rebalancing, not crisis

Not everyone buys the “liquidity crunch” narrative: “Describing what the banking sector is witnessing as a ‘liquidity crisis’ — or even quiet crises — is an analysis that lacks technical accuracy,” says EG Bank board member Mohamed Abdel Aal. “We are passing through a phase of ‘structural liquidity rebalancing.’”

The banks are operating efficiently, Abdel Aal says. He points out that domestic liquidity (M2) “exceeded EGP 15.3 tn in May,” which marks a 19.5% y-o-y increase from EGP 12.8 tn a year earlier. He also cites safety metrics as proof there’s no real shortage, explaining that the loan-to-deposit ratio is still “within comfortable levels,” meaning the banks are still able to finance credit without pressure. The sector also has a sufficient safety cushion, as banks’ ratios of liquidity coverage and net stable funding “exceed prescribed limits.” As he puts it: “If there were a real liquidity crisis, we would have witnessed a disruption in these vital ratios, but reality shows that the banking system is operating with high efficiency.”

Abdel Aal says the state banks’ lead on yields is not defensive repricing, but the CBE executing policy by proxy. To avoid needing a sharp change in the base interest rate, the CBE may rely on banks to absorb excess liquidity and contain inflationary pressures, he explains. In his view, the scramble reflects banks managing a wave of certificate maturities and guarding against “monetary leakage” into consumption, gold, or USD. The drop in open market operations, he says, is simply “normalization, reflecting the market’s adaptation to current interest rate levels.”

A hike aimed at savers

The CBE’s policy-by-proxy is intended to maintain fixed rates for foreign investments in short-term debt, says Walid Gaballah, an economist at ESPESL. He agrees with Abdel Aal that the CBE and banks are raising interest rates without a formal hike, but he reframes it as a deliberate move to avoid handing higher yields to foreign holders of local debt. The two largest state banks, he notes, raised deposit rates roughly 0.5 percentage points as “a preemptive hike” to absorb liquidity from public-sector wage increases and maturing deposits.

Demand, not supply: “Banks today already possess sufficient liquidity; they do not need a reduction in the required reserve ratio,” Gaballah says. For him, the real bottleneck isn’t a shortage of funds, “but rather the lack of investors willing to borrow” — a hesitancy he ties to the contractionary PMI reading of 46 in June.

The clock is ticking

Ample liquidity or not, the timing of the deposit race has its own logic. “Before the most recent meeting, there was a near-consensus on holding rates. But now, there is some discussion about cutting and some discussion about holding, meaning we may be closer to resuming the easing cycle,” says Metwally, tying it to a shift in expectations around the CBE’s next move. “It’s natural for banks to start reacting to these developments” by locking in funding at a known cost before any cut arrives, rather than risk deposits migrating to competing instruments.

That calculus, Metwally cautions, is contingent on calm holding. The resurgence of tension between the US and Iran “may temporarily calm rate-cut expectations” — though he says it remains unclear whether a cut will ultimately materialize.

Metwally also flags a margin risk further out: if rates do eventually fall while banks are still carrying high-yield certificates issued today, “this may pressure net interest margins, especially if treasury bills and loan yields decline faster than deposit costs.” He expects banks to respond by becoming “more selective in extending credit,” with SMEs likely feeling more strain than large corporates, since “funding costs may not decline at the same pace as the central bank’s official rate cut.”

The reserve-requirement valve

“If pressures begin to push interest rates to cross the 20% level […] it is certain that the central bank will intervene,” Genena says, most likely by “cutting the minimum required reserve ratio.” CONIA is already hovering near the corridor ceiling, which is why he expects that move to come eventually.

“If a reserve requirement cut happens, I see it as very limited, in the range of 1% to 2% only,” says Metwally. He expects any move to be modest given the still-elevated core inflation — which he says is “more important than headline inflation” — and aimed at supporting liquidity, rather than signaling an easing cycle. With the ratio already down from 18% to 16% after February’s cut, a further move of that size would leave it near 14-15%.

Metwally also stresses that liquidity and inflation are handled through separate tools. The CBE is more likely to lean on open market operations or reserve requirements than rate cuts if liquidity tightens further, he explains.

The near-term outlook

“I expect competition for deposits to continue through the third quarter, and perhaps extend into early 4Q, but it may ease if the rate-cutting path becomes clear and inflation expectations stabilize,” Metwally says. Should uncertainty persist and investment funds keep pulling in household savings, he expects banks to keep rolling out high-yield products — though increasingly with shorter tenors and more flexibility rather than the multi-year lock-ins of the past.

The bottom line: Whether framed as genuine tightening, defensive repricing amid ample liquidity, or deliberate rebalancing within an abundant system, our sources agree that Egypt’s banking sector is entering a phase where cheap, surplus liquidity is no longer a given. The path ahead hinges on interbank rates, open market operations, deposit growth relative to credit growth, private-sector credit demand, and whether the CBE moves on the reserve requirement — a decision several sources believe is more likely to hinge on the inflation trajectory than on liquidity conditions themselves.