Securitization contributes to increasing market's liquidity
Egypt, Economics, 7/30/2002

Mahmoud Mohieddin, Advisor to the Minister of Foreign Trade and member of the Board of Directors of the Central Bank of Egypt (CBE) asserted that market indicators show that interest rates in bank's deposits and interest rates among banks are declining, adding that this is a positive development as it conforms with the set economic rules without any sort of interference on the part of the CBE.

He said that the dollar exchange rate is no longer the main element in determining the interest rate on the Egyptian pound, in the light of developments in the foreign exchange market which witnessed an ascending trend of other currencies such as the Euro and Pound Sterling. This, besides transferring to the Egyptian pound in order to benefit from the difference in the interest rates on the Egyptian pound against other currencies.

Mohieddin said that decline of inflation rate to nearly 2.8 per cent annually would render high interest rates unjustified, and that the decline in interest rates could provide a climate proper for securitization activity, he added.

Mohieddin further noted that laying down the securitization system will not be achieved through a special law but rather as a chapter of the new capital market law whose issuance was postponed this year.

Advisor of the Minister of Foreign Trade, who doubles as the Chairman of the NDP Economic Committee, elaborated that securitization (transferring some loans or debts to new and guaranteed securities) could reactivate a host of sectors mainly the real estate, cars and credit cards in the Egyptian pound. He indicated that there are some financial and investment establishments which are currently thinking of ensuring their existence on the Egyptian market with the aim of securitizing monetary inflows resulting from credit cards.

Securitization could also contribute to increasing the volume of liquidity and redressing the problem of nonconformity between assets and liabilities through easing down the status of indebtedness, Mohieddin noted.

He said despite the fact that securitization system could contribute to providing long-term financing, minimize its costs, expand the base of financiers and investors and reactivate the capital market, yet it is not free of risks, besides high costs in terms of credit, guarantees and bankruptcies.

Other experts say the goal of securitization is to link the original debts to securities through assembling debts in the form of a portfolio and the issuance of securities in the same value.

They, however, noted that there are some legal issues which need to be tackled to ensure success of the securitization system regarding the secrecy of accounts and the financial leverage of the securitization company.

Ahmed Foudah, a stock market expert, said that the costs of securitization would be cheaper than borrowing from the market in general, adding that this could be beneficial in installment Bales of household appliances and cars.

Mahmoud Fahmy, a legal expert pointed out that the real estate financing law in its current form cannot be implemented as it lacks 16 legal instruments to become applicable.

Faika El-Rifaei, member of the People Assembly, warned against entry by investment funds in the securitization activity, saying those funds have not made very notable success so far and are facing problems. She said since securitization contributes to reactivating the capital market, it should be preceded by growth of economy and reactivation of productive units.

Ahmed Galal, Director of the Egyptian Center for Economic Studies (ECES) said securitization is an important method of reactivating liquidity, adding that the existence of an active securitization market will provide a big opportunity before the Central Bank of Egypt (CBE) to control interest rates through cutting down or raising interest rates on securities issued by the Bank.

Previous Stories:
  Measurers to enhance banks' role in modernizing industry   (7/29/2002)
  Egypt to sell 170 enterprises   (7/27/2002)
  Egypt to further explore African markets   (7/27/2002)

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