01:43 PM
Monday, March 27, 2023
I wrote – Manal Al-Masry:
Bankers expected that the Central Bank would resort to reducing the credit limit for loans to retail banking customers – individuals – as one of the tools in its hand, other than the interest rate, to reduce the rates of purchase of consumer goods, in a way that contributes to curbing inflation – controlling price increases.
Retail banking loans are known as consumer financing to be used to purchase a specific commodity under the name of a purchase loan (a car, durable goods, finishing a housing unit, Hajj and Umrah, club membership, tourism for travel outside Egypt, or a personal loan known as cash, and other other commodities offered at banks).
Banks are currently obligated to apply a credit limit for lending to ordinary individuals that does not exceed 50% of the total monthly income of the customer for consumer loans, and this percentage does not exceed 40% in the case of granting real estate loans for personal housing, which is a percentage established from 2019 by banks.
Sahar El-Damaty, former Vice President of Banque Misr, expected the Central Bank to reduce the credit limit for individual loans to help curb inflation and control pressures of price increases, in addition to raising the interest rate within the limits of 2% at its next meeting.
Al-Damati suggested that the Central Bank reduce the maximum lending limit to 35% instead of 50% of the total monthly income of the customer, in order to reduce the rate of spending and obtain consumer loans, which is one of the reasons for the increase in the inflation rate, according to her.
The Monetary Policy Committee of the Central Bank will hold its second meeting this year, next Thursday, with the aim of deciding the fate of interest rates, after it kept them unchanged at its last meeting on February 2, amid expectations of an expected hike to control inflation.
The annual core inflation rate rose to its highest level, reaching 40.3% in February, compared to 31.2% in January, according to a statement issued by the Central Bank earlier this month.
The annual inflation rate in Egyptian cities jumped last February to 31.9%, compared to 25.8% last January, according to a statement from the Central Agency for Public Mobilization and Statistics earlier.
Mohamed Abdel-Aal, the banking expert, agreed with Sahar El-Damaty’s expectations that the Central Bank would resort to studying reducing the credit limit (DBR), which would contribute to reducing consumer demand, which would lead to controlling inflation rates, as well as hedge against customer defaults due to the high cost of living. caused by the price increase.
In 2016, the Central Bank began to reduce the credit limit for consumer loans for the first time, to become 35% of the total monthly income of the customer, with the aim of reducing defaults and limiting consumption, before raising the limit to 50% 4 years ago.
Abdel Aal explained that reducing the central credit limit for lending would be a better solution than raising the interest rate, which would not be economically feasible, but might contribute to raising prices, because the interest cost is included in the pricing of the final product and thus is reflected in raising the inflation rate and limited competition for export commodities.
The Central Bank raised the interest rate by 8% on 4 times during the past year, the last of which was 3% last December, to record its interest rate of 16.25% for deposits and 17.25% for lending.
