On his international day, what is required to raise the saving rate locally?

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165% growth in deposits within 4 years..but the savings rate is declining

Banks in Egypt are preparing for the activities of the International Day of “Savings”, from the middle of this month to the end of this month, through a number of services that will be announced next week, similar to the past years in which they implemented awareness campaigns and campaigns for exemption from administrative expenses for opening accounts.

Deposits in Egypt grew strongly during the period from December 2016 to May 2021, at a rate of more than 165%, to reach 5.609 trillion pounds, compared to 2.116 trillion pounds. Despite this, the savings rate in Egypt has not yet recovered.

According to World Bank data, the savings rate as a percentage of GDP is 11.13% at the end of 2020, compared to 23.62% at the end of 2008. The percentage of what Egyptians save is affected by several factors; Most notably the economic reform program, the liberalization of the exchange rate, and energy price reforms.

At the same time, savings rates received support from the high-return certificates offered by Al-Ahly Bank and Egypt with an interest rate of 20% and lasted for a long period, with the support of the Central Bank offering a new open market mechanism that allows linking deposits from its banks with long terms and variable interest, then amended the mechanism to become linked to interest In corridors, the interests of those deposits partially enabled the banks to cover the huge interests paid, and the Central Bank incurred losses to withdraw the excess liquidity.

These certificates had a major role in the growth in the volume of deposits in the banking sector, and led to a decrease in the percentage of deposits in foreign currency to 16.9% of the total deposits in June 2020 and then 13.5% at the end of last June, after it rose as a result of doubling the value of foreign currencies through flotation, to 27.8% from total deposit.

This paralleled the Central Bank’s instructions to the banking system to promote banking products outside bank branches, in addition to opening accounts for customers, and issuing and activating various credit cards. To enhance financial inclusion.

Banks launched lending programs based on savings, such as loans with the guarantee of savings certificates, or the issuance of limits on credit cards with the guarantee of a deposit or certificate, and they were very popular with customers.

“SOS”: Loans secured by savings contributed to an increase in lending rates

Karim Souss, CEO of the retail banking sector and branches at the National Bank, said that personal loans against deposits have played a major role in the growth of the retail loan portfolio of the National Bank during the past years.

According to the data of the prospectus for the offering of international bonds, which was presented by the Ministry of Finance at the end of last September, non-withdrawable deposits recorded 463.4 billion pounds at the end of May 2021, compared to 120.7 billion pounds at the end of December 2016.

Al-Qadi: Digital channels have supported the growth of deposits, and real estate financing is another aspect of saving

Ashraf El-Qadi, President of The United Bank, said that the mechanization of salaries and the spread of secure digital channels have a role in the growth of deposits in the banking sector, as they have enhanced safe and easy access to funds, so there is no longer the phenomenon of crowding in front of machines to withdraw salaries in one go, especially with the reassurance of the security of digital transactions.

He stated that increasing reliance on mobile wallets and vending machines will further support the growth of deposits and benefit from those balances, unlike ATMs, which represent a burden in feeding them, in addition to the stagnation of liquidity placed in them, as their turnover rate is much lower than other digital channels.

He added that raising savings rates requires more awareness raising among customers by banks to change the culture of consumption to keep part of the income for the purpose of investment so that the customer can set aside between 10% and 20% of the income in savings products such as certificates or investment funds and others that guarantee a return. Appropriate.

He noted that real estate financing products are another type of savings as one of the long-term investment means for the customer, adding that the bank will offer, through its financial arm United Finance, the Ijarah product for real estate financing in the Islamic format, in addition to savings vessels and certificates of deposit that are designed to suit all segments of customers, whether in formulas Conventional or Islamic, as well as investment funds with competitive returns.

Nagy: Products should be designed to suit different segments to increase rates

Walid Nagy, Vice President of the Egyptian Arab Land Bank, said that it is necessary to develop new saving methods from banks to attract more customers to take advantage of banking products that encourage them to save and meet their needs, including savings accounts for university students and savings certificates for pensioners and employees.

He stated that the banking system succeeded during the previous years in reaching the simple and marginalized classes by offering a security certificate product, which attracted the irregular labor class, explaining that banks need more efforts to raise savings awareness to customers of the importance of digital services and motivate them by deducting 1% on the expenses of savings accounts that are made. Subscribe to it digitally, for example.

He explained that the relationship is direct between deposits and the interest rate, but there are criteria that control the rate of return, most notably inflation rates. The real interest rate is currently higher than it was when the 20% certificates were offered with inflation rates that exceeded 30% at the time.

He pointed out that major banks were able to wake up early to benefit from salary transfer, especially employees of petroleum companies, multinational companies and government agencies, and currently there is competition between banks to offer digital services that can attract companies and automate their salaries, thus raising the percentage of low-cost savings such as savings accounts. and current accounts.

Alaa Ali, Vice President of the Agricultural Bank of Egypt, said that the bank is interested in motivating customers to invest their money in products that meet their needs, whether in the harvest certificate with a return of 11% and savings accounts at an interest rate of 8%, considering that they are steps to encourage saving.

He added that banks have devised products to motivate employees to purchase investment fund documents from the monthly salary, while adding the return on savings accounts on a daily basis.

He suggested the cooperation of the banking system and the Ministry of Health and Population to launch the initiative to open savings accounts for each newborn with a gift balance of a small value that encourages his family to increase his balance until reaching the educational stages, which provides a return to the account holder in paying educational and other expenses.

Mohieldin: Opening student accounts prevents savings from leaking out of the investment path

In this regard, the Executive Director of Egypt at the International Monetary Fund, Mahmoud Mohieldin, called for the opening of a savings account for each student to develop a new approach that puts savings as the first goal of financial inclusion, pointing out that there is a large leakage in Arab savings away from the investment and development path, which is heading towards speculation. And do not say real estate investments, the acquisition of gold and durable goods.

In previous statements to Al-Borsa newspaper, he stated that this initiative benefits from four factors: the first of which is the youthful population formation, the increasing number of schoolchildren and university students in the Arab countries, the second is the spread of Internet services in Arab countries, the third is the expansion of banking activity, and the fourth is the use of the number system Unified nationalism in several Arab countries.

He added: “At the beginning of the school year, new students in their schools register their names, and they also automatically register in banks by opening an electronic financial account in which a token amount is deposited, to be the equivalent of 10 dollars (in the local currency), provided that these deposits are financed by banks in cooperation with central banks. Using a limited margin of legal reserve.

He stated that this initiative will make a qualitative leap in the financial and savings culture for students and their families, and open up prospects for financial services such as credit, investment, stock exchange and insurance business. They and their families add to it savings over time according to their financial conditions.

He continued: “This initiative, if implemented well, using an integrated database and coordination between banks, would achieve financial inclusion that has real benefits for individuals and the economy. Financial services are more diverse and important than simply opening an account to pay obligations and dues, with all that is necessary.”

Written by: Muhammad Yahya

The article on its International Day… What is required to raise the saving rate locally? It was written in Al Borsa newspaper.