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November 1, 2014

Supervision will cover monetary fund money despite antipathy of investment directors.
The Central Bank of Egypt (CBE) will create regulations supervising “shadow banks”, including all monetary transactions made outside of the banking sector which are under the supervision of regulatory entities. The statement was made by CBE Deputy Governor Gamal Negm in an economic conference in Sharm El-Sheikh on Thursday.

During the conference, Negm said that financial funds are established by banks and help collect money through subscriptions, authorising management by investment administration companies. Those companies invest the money in sectors outside the supervision of the CBE, making it essential to monitor their actions.

Managing Director and Head of Asset Management at HC Securities & Investment, Omar Radwan, described the CBE’s decision to increase its supervision as an unregulated decision. Radwan added that it will narrow the opportunity for funds which now face a huge reduction in number, especially after the CBE’s decision to lower banks’ fund share from 5% to 2%.

The CBE’s decision came after it capped the maximum amount of invested money in all monetary fund markets and fixed income funds of a single bank. The CBE said it should not be more than 7.5% of its total domestic currency deposit, and not exceed 50 times the maximum fund’s capital share, 2%, or whichever is less.

Radwan added that it is important for banking sector officials to cover the parallel economy out of their supervision, unlike the funds under 100% supervision of the CBE, the Financial Supervisory Authority (EFSA) and General Assemblies.

Radwan said that fund money comes from the banking sector and are managed through the purchase of treasury bills. He also said that this decision will halt monetary fund activities in favour of banks, who will retain money.

National Bank of Egypt CEO Hisham Okasha added that the banking system’s success depends on collecting savings and managing them in efficient ways to develop the economy. Monetary investment funds work on the output of money from banks and their investment in government debts against the stability of the banking system. As a result, deposits in the banking system must be saved.

Banks are investing savings they collect in various economic fields, whatever the size of individual or company finances, Okasha has previously said.

He added that banks invest their surplus in the treasury bills, unlike monetary funds that allocate most of the savings for investments in treasury bills.

The gain achieved by banks from regular financing is much better than investments in treasury bonds and bills, as they provide credits in exchange for commissions and expenses. Taxes are also added to net revenues, unlike government debts instruments where taxes are added to total revenues not net revenues, he said.

The CBE decision to decrease the maximum banks contribution in monetary funds with attempts to limit funds management, will have negative repercussions on monetary and fixed income funds. This can reduce the size of those funds on both the long and short term, according to Managing Director of Rasmala Egypt Asset Management Ahmed AbulSaad.