Emergency liquidity… What does the Central Bank of Egypt’s decision mean?

On Monday, the Central Bank issued a circular that included its agreement to define a general framework for emergency liquidity, according to which banks are granted emergency liquidity in the event that any bank is unable to provide liquidity from the interbank market, and to determine the pricing of the emergency liquidity return at the bank’s overnight lending rate plus a margin determined by the bank. At a minimum of 5%.

The decision raised fears on social media that there was an economic crisis that prompted the Central Bank to make this decision.

While the former banking and parliamentary expert, Basant Fahmy, said that there is no liquidity crisis in the Egyptian banking market, especially with regard to foreign exchange, as evidence that the size of the Egyptian foreign exchange reserves is large and reassuring.

She stressed in statements to “Sky News Arabia” that transactions inside the Egyptian market are done in the local currency and there is no need for foreign exchange except in the case of import from abroad, but all ongoing projects in Egypt are done in the Egyptian pound, and this has a driving advantage for the market and gives good indicators for the Egyptian economy despite the crisis. Corona.

She explained that the Central Bank’s decision to determine the emergency liquidity framework does not mean the existence of a crisis, but it is a specific natural procedure for the issue in the event of any shortage facing any bank.

She pointed out that the interbank means that banks have liquidity and surplus, and banks suffer from a lack of liquidity due to the increase in funding they have, so the latter resort to the former to obtain loans to provide the necessary liquidity.

She stressed that the Central Bank set the interest rate for providing liquidity from the interbank market in order to maintain market balance and not cause inflation in the case of any bank that determined its interest by itself.

It is worth noting that the Central Bank’s decision included that the Central Bank should grant emergency liquidity financing as a last resort in the event that any of the banks is unable to meet the liquidity needs of the interbank market or other financial markets in accordance with clear controls and instructions.

He explained that such liquidity is prohibited from financing dividends, repurchasing shares, disbursing board members’ bonuses, employee distributions, or financing parties associated with the bank, with the Central Bank permitted to disclose that liquidity provided to banks to maintain financial stability and support the confidence of dealers with the banking system.

The Central Bank indicated that the operations of granting emergency liquidity do not preclude the right of the Central Bank to take other measures assigned to it by law, with the commitment of the bank obtaining emergency liquidity to provide the Central Bank with a monthly report explaining several criteria, including the solvency standards with the inclusion of all assets that can The Central Bank used it as collateral and all developments and measures taken by the bank to restore its liquidity position to a stable condition.



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