Bank and bank benefits in the Egyptian economy

Banks and Bank Interest in the Egyptian Economy
A bank is a financial institution that offers a range of financial services such as deposits, withdrawals, and lending. When discussing "bank interest," this usually refers to the interest rate imposed by banks on loans or offered on deposits. Given the economic fluctuations in Egypt, whether in terms of bank interest rates or inflation, the returns obtained by a bank depositor differ from those achieved by a real estate investor.

Deposit Interest Rates:
When depositing money in banks, depositors receive financial returns through interest on deposits. Bank deposit interest is usually lower compared to other investment opportunities, meaning that money kept in a bank may be negatively affected by inflation. In Egypt, bank interest rates on deposits have been relatively low in recent years compared to inflation rates, leading to a loss in the purchasing power of deposits.
Banks often offer fixed interest rates, such as 8% annually, or variable rates depending on central bank policies. However, with high inflation, these interest rates have become insufficient to maintain the value of deposited money.

Loan Interest Rates:
Conversely, if a person takes out a bank loan, the interest rates on loans increase as economic interest rates rise. In recent years, mortgage loan interest rates have risen significantly due to the depreciation of the Egyptian pound and increasing inflation.

The Depreciation of the Egyptian Pound Against the Dollar (Since 2020)

Since 2020, the Egyptian pound has experienced a major decline against the US dollar due to several economic factors. From the COVID-19 crisis to the impact of the Russia-Ukraine war and internal economic challenges, the effects of these fluctuations have been evident on financial and real estate investments.

March 2020: At the start of the COVID-19 crisis, the Central Bank of Egypt cut interest rates by 3% to counter economic stagnation, causing the pound to decline by approximately 15% against the dollar, with the dollar reaching around 15.7 EGP.

2021: The dollar continued to rise, reaching about 16.5 EGP due to the pandemic’s impact on the global economy and Egypt’s declining foreign reserves.

2022: As a result of the Russia-Ukraine war, the dollar rose to 18.5 EGP at the start of 2022, exceeding 19 EGP by the end of the year.

Late 2022 - Early 2023: Due to economic pressures and rising inflation, the dollar jumped to 29 EGP at the beginning of 2023.

Real Estate Investment Analysis: What If You Invested in Real Estate Instead of Depositing Money in the Bank?

Given the devaluation of the Egyptian pound, real estate investment has become one of the best available options for investors in Egypt. Suppose a person decided in 2020 to buy property instead of keeping their money in a bank.

Assumptions:

In 2020, an individual purchased an apartment in the Fifth Settlement with an area of 100 square meters at a price of 8,000 EGP per square meter.

The total apartment price: 800,000 EGP (equivalent to $50,955 at an exchange rate of 15.7 EGP per dollar).

Real Estate Returns vs. Bank Interest Earnings:

By 2023, if the same person decided to sell the apartment, the price per square meter had risen to 15,000 EGP due to the pound’s decline and increased real estate prices caused by inflation.

Apartment Price in 2023: 15,000 EGP × 100 meters = 1,500,000 EGP

Real Estate Profit: 1,500,000 - 800,000 = 700,000 EGP

Bank Interest Returns:

If the same person had deposited 800,000 EGP in a bank instead of buying real estate, we calculate returns based on the bank interest rate:

2020: 800,000 × 10% = 80,000 EGP

2021: 880,000 × 10% = 88,000 EGP

2022: 968,000 × 10% = 96,800 EGP

2023: 1,064,800 × 10% = 106,480 EGP

Total bank earnings over four years: 371,280 EGP

Comparing Returns: Real Estate vs. Bank Deposits

Real estate profit: 700,000 EGP

Bank interest profit: 371,280 EGP

Clearly, real estate investment was far more profitable than depositing money in a bank. The real estate profit was 88% higher than bank interest returns over the same period.

Real Value of Returns After Inflation

During this period, inflation was high in Egypt, affecting the purchasing power of money. While bank interest remained fixed, inflation negatively impacted real returns. Inflation in Egypt between 2020 and 2023 ranged from 5% to 7% annually, meaning bank interest earnings were not sufficient to maintain purchasing power.

Conversely, in real estate investment, returns were more resistant to inflation as property prices increased over time, preserving and even enhancing value.

Conclusion:

Real estate investment provides significantly higher returns than bank interest, especially amid the depreciation of the Egyptian pound and rising inflation.

Real estate protects money from inflation and increases in value over time, while bank interest earnings are insufficient to keep pace with these increases.

Over the long term, real estate investment is a safe and profitable option, particularly in a fluctuating economy.

For investors looking for sustainable and profitable returns, real estate remains one of the best choices during these times.

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