Egypt bank of­fers callable dol­lar op­tions

The Pak Banker - - FRONT PAGE -

CAIRO: The state-owned Na­tional Bank of Egypt said it would start of­fer­ing for­eign in­vestors callable dol­lar op­tions as part of an ef­fort to lure for­eign in­vest­ment back into the coun­try. Group Head of Trea­sury and Cap­i­tal Mar­kets at the bank, Amr Mostafa, told Reuters in a phone in­ter­view the move was in­tended to re­as­sure in­vestors in the debt cap­i­tal mar­ket.

"We are of­fer­ing this for po­ten­tial in­vestors who want to in­vest and make a carry trade so they would make some yield pickup if they com­pare it to in­vest­ing in dol­lars," he said. Egypt, which re­lies heav­ily on im­ports, has been starved of for­eign cur­rency since a pop­u­lar up­ris­ing in 2011 drove away tourists and for­eign in­vestors. Its re­serves fell from $36 bil­lion in 2011 to around $16.5 bil­lion in Fe­bru­ary.

The move is the lat­est in a se­ries of steps to at­tract dol­lar liq­uid­ity into the bank­ing sys­tem.

Ear­lier on Mon­day the cen­tral bank de­val­ued the pound to 8.85 per dol­lar from 7.7301. Egypt's top two state banks, the Na­tional Bank of Egypt and Banque Misr, an­nounced soon af­ter that they will of­fer Egyp­tian pound in­vest­ment cer­tifi­cates with a 15 per­cent yield in re­turn for for­eign cur­rency. Bankers, ex­pect­ing a rise in key in­ter­est rates at the next mon­e­tary pol­icy meet­ing on Thurs­day, bid ag­gres­sively at Mon­day's 5-year and 10-year trea­sury bond auc­tions, caus­ing yields to jump sharply.

In­ter­est rates in Egypt are al­ready high, with the overnight de­posit rate at 9.25 per­cent and the overnight lend­ing rate at 10.25 per­cent. Mostafa said that through the call op­tion in­vestors wish­ing to in­vest in Egyp­tian trea­sury bills could buy three, six, nine-month or one-year op­tions, guar­an­tee­ing the price and avail­abil­ity of dol­lars.

"So when­ever they want to exit the mar­ket they will get out at the strike price at which they bought the op­tion and we guar­an­tee the avail­abil­ity of the dol­lars for their in­vest­ment in Egyp­tian pounds to­tally, which is the prin­ci­pal plus the in­ter­est or cap­i­tal gains they make," Mostafa said. He said that the bank had al­ready seen in­ter­est in the callable op­tions. "Some peo­ple are ask­ing about size, some are ask­ing about tech­ni­cal­i­ties and we are get­ting many calls," he said.

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