Bank allows transfers, limits cash withdrawals

Cairo: Egypt's central bank said it would would limit cash withdrawals by individuals but allow unlimited transfers abroad when banks reopen tomorrow after a week-long closure caused by the country's political protests.

With no resolution in sight after 10 days of violence on the streets, bankers are bracing for chaos at bank counters and dealing rooms as alarmed investors withdraw funds from accounts and flee the Egyptian pound.

One Cairo-based trader in a bank treasury said the central bank statement would calm nerves as Egypt's financial system moves into uncharted territory.

"It will help to limit bank runs," he said. "We don't know what will happen. We don't have information. We will open to the unknown."

The Egyptian government has 21 billion Egyptian pounds (Dh13.17 billion) in maturing treasury bills that must be redeemed this week.

Foreign investors

A substantial portion of the bills are held by foreign investors benefiting from high Egyptian interest rates and by banks that will not want to roll them over because they need the liquidity to meet the expected run on funds.

Deputy Governor Hisham Ramez said the central bank's $36 billion in reserves were adequate to cover withdrawals and transfers.

"There is no problem. We will be able to honour all transactions," he said by telephone on Thursday.

He also dismissed concerns that the pound might weaken sharply.

"This is not true. We don't comment on currency matters, but this will not happen," he said.

Analysts have said the central bank's reserves could be severely depleted within weeks if Egypt's political stand-off is not resolved quickly.

In the two working days after the protests erupted on January 25, which was a bank holiday, Egyptians and foreign investors transferred hundreds of millions of dollars out of Egypt, currency traders estimated.

The stock exchange lost 16 per cent of its value in the two days. Analysts said several of Egypt's main sources of foreign exchange were likely to dry up in the coming weeks because of the political turmoil.

In the third quarter of 2010, Egypt each week was receiving about $280 million from tourism, $235 million from Egyptians working abroad and $120 million from foreign direct investment.

Vice-president Omar Sulaiman said in an interview on state television on Thursday that the country had "at least $1 billion lost in tourism in the last nine days" and that 1 million tourists had left during the turmoil. Many workers abroad are likely to hold back on repatriating funds until they are sure the pound has stabilised, although some will still want to send funds to their families.

Only selected branches in Cairo and major provincial cities will reopen on Sunday.