Tags: egypt | mideast | bank

Bank Run Feared in Egypt as Unrest Spreads

Sunday, 30 Jan 2011 06:50 PM

 

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Egypt’s banks may risk a surge in customer withdrawals when they reopen for business, placing them among companies worst hit by the nationwide uprising against President Hosni Mubarak.

“A run on the banks would be the biggest concern, which is possible in the current situation,” Robert McKinnon, chief investment officer at ASAS Capital in Dubai, said in a telephone interview. Authorities are likely to keep the financial system closed to avert the risk, he said.

Egypt’s banks and markets stayed shut after six days of clashes in the most populous Arab country that left as many as 150 people dead. Tanks were guarding banks and government buildings in Cairo that were vulnerable to looting, state television said. The EGX 30 stock index had a two-day drop of 16 percent through Jan. 27, with Commercial International Bank Egypt SAE, which accounts for more than one-fifth of the benchmark, falling 12 percent. Markets throughout the Middle East declined on concern the unrest may spread.

Mubarak responded to the protesters’ accusations of presiding over a corrupt and repressive regime by sacking the Cabinet and appointing a vice-president, intelligence chief Omar Suleiman, for the first time. The measures weren’t enough to prevent more clashes as thousands defied a curfew in Cairo and other cities. The central bank said banks and markets would stay closed, and a government debt auction was canceled.

Central Bank Governor Farouk El-Okdah said in a telephone interview that his bank has $36 billion in reserves, enough to accommodate investors should they wish to withdraw funds. His deputy, Hisham Ramez, said interbank lending “will function properly” when banks are reopened. He said the security situation will determine when that is possible.

Asked about the risk of a bank run, Mohamed Barakat, chairman of state-run Banque Misr and head of the country’s banking association, said in a telephone interview that Egyptian lenders are “very liquid,” with average loan-to-deposit ratios of 53 percent.

Still, “when banks open, people will rush in to withdraw their money,” said Mohammed Yasin, chief investment officer at Abu Dhabi-based CAPM Investment. While that’s a reason for authorities to keep them closed, “life will not normalize” under such conditions because “people need access to money to buy food and basic daily necessities,” he said.

The Egyptian interbank offered rate, the rate banks charge to lend to each other, is at a 16-month high of 8.5 percent.

CIB, the biggest publicly traded lender, had assets of 64.1 billion Egyptian pounds ($11 billion) and deposits of 54.6 billion pounds at the end of 2009, according to data compiled by Bloomberg. London-based private-equity firm Actis Capital LLP became the largest shareholder in the bank in July 2009, buying a 9.3 percent stake for $244 million.

National Societe Generale Bank, the second-biggest listed bank, is controlled by Paris-based Societe Generale. It had 43.7 billion pounds of deposits at the end of last year.

Insurance companies will also be hit by a flood of claims for properties and businesses damaged during the clashes, Yasin said. Insurers with businesses in Egypt include American International Group Inc. and Allianz SE.

The economic impact of the worst unrest in Mubarak’s three-decade rule won’t be confined to the finance industry. Also at risk are inflows from tourism and remittances by Egyptians working abroad, which together with revenue from the Suez Canal are the country’s main sources of foreign currency.

“Two of the three will suffer” as tourists stay away and expatriates will be reluctant to deposit their money in Egyptian banks in the current climate, said Brad Bourland, chief economist at Jadwa Investment in Riyadh. Revenue from Suez won’t be hurt unless the canal is closed, a measure that currently seems unlikely, he said.

Suez shipping was operating normally, with 38 vessels carrying 1.5 million tons of cargo, Mahmoud Abdelwahab, a spokesman for the Suez Canal Authority, said in a telephone interview. The canal carries more than 4 million barrels of oil a day, and concern that shipments may be disrupted helped push crude prices up 4.3 percent on Jan. 28.

Remittances were worth $9.5 billion in the fiscal year through June, according to central bank data.

Tourism earned Egypt, whose attractions include the pyramids of Giza and the Red Sea coast, as much as $13 billion last year, according to government estimates. Shares in Talaat Moustafa Group, which owns the Four Seasons Hotel Cairo, slumped 13 percent on Jan. 27.

A growing tourist industry helped the economy expand at an average annual rate of 7 percent in the three years through June 2008, the pace that the government says is needed to create enough jobs for a growing working-age population in the country of 80 million. Growth slowed after the global financial crisis, and official forecasts for last year were about 6 percent.

Foreign direct investment in Egypt, which fell 17 percent to $6.8 billion in the last fiscal year, may decline further as a result of the upheaval, said Rami Sidani, Head of Investment at Schroders Middle East in Dubai.

Companies that made acquisitions in Egypt include Amsterdam-based brewer Heineken NV, which bought Al Ahram Beverages Co. for $287 million in 2002. Heineken has stopped operations in the country until further notice on safety concerns and is evacuating expatriate employees, spokesman John Clarke said in a telephone interview yesterday.

International businesses will stay away “until there’s more visibility on what’s happening politically,” Sidani said. In the meantime, the economy “will see a major deterioration.”

© Copyright 2014 Bloomberg News. All rights reserved.

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