National Bank of Egypt offers callable dollar options

The state-owned National Bank of Egypt said on Monday it would start offering foreign investors callable dollar options as part of an effort to lure foreign investment back into the country. Group Head of Treasury and Capital Markets at the bank, Amr Mostafa, told Reuters in a phone interview the move was intended to reassure investors in the debt capital market.
"We are offering this for potential investors who want to invest and make a carry trade so they would make some yield pickup if they compare it to investing in dollars," he said. Egypt, which relies heavily on imports, has been starved of foreign currency since a popular uprising in 2011 drove away tourists and foreign investors. Its reserves fell from $36 billion in 2011 to around $16.5 billion in February.
The move is the latest in a series of steps to attract dollar liquidity into the banking system. Earlier on Monday the central bank devalued the pound to 8.85 per dollar from 7.7301. Egypt's top two state banks, the National Bank of Egypt and Banque Misr, announced soon after that they will offer Egyptian pound investment certificates with a 15 percent yield in return for foreign currency.
Bankers, expecting a rise in key interest rates at the next monetary policy meeting on Thursday, bid aggressively at Monday's 5-year and 10-year treasury bond auctions, causing yields to jump sharply. Interest rates in Egypt are already high, with the overnight deposit rate at 9.25 percent and the overnight lending rate at 10.25 percent. Mostafa said that through the call option investors wishing to invest in Egyptian treasury bills could buy three, six, nine-month or one-year options, guaranteeing the price and availability of dollars.
"So whenever they want to exit the market they will get out at ... the strike price at which they bought the option and we guarantee the availability of the dollars for their investment in Egyptian pounds totally, which is the principal plus the interest or capital gains they make," Mostafa said. He said that the bank had already seen interest in the callable options. "Some people are asking about size, some are asking about technicalities and we are getting many calls," he said. "I think there will be decent demand." Foreigners' holdings of local treasury bills have fallen well below $1 billion from over $10 billion at the end of 2010, bankers say.