Potential Impacts of SVB’s Demise on Egyptian Economy

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On March 10th, US federal regulators shut down Silicon Valley Bank (SVB), resulting in the second-largest banking failure in the history of the US since the global financial crisis. The bank’s collapse is believed to have started on March 8th, when the bank attempted to raise $1.75 billion in capital, alarming people that the bank was capital short. Although the Federal Deposit Insurance Corporation (FDIC) has tried to assure depositors that they will receive their money in a short time, the issue of the SVB’s closure has caused turbulence in the banking, gold market, and the business world. It has also affected the Egyptian economy.

Reaction of Egyptian Banking System

To address citizens’ worries, the Central Bank of Egypt (CBE) confirmed in a press release on March 12th that the Egyptian banking sector is unaffected by the negative financial conditions to which the SVB is exposed, given that Egyptian banks have no deposits, investments, or financial transactions with SVB.

Moreover, the collapse of SVB, followed by the bankruptcy of Signature Bank in the US within a week, may affect the decision of the Federal Meeting. Mourad Haggag, Branch Manager at Alex Bank, tells Arab Finance: “I think they will increase the interest rates due to the current situation, especially after shutting down SVB.”

Accordingly, the exchange rate of the Egyptian pound against the US dollar may see another increase. Haggag explains that “the exchange rate of EGP to USD by the end of 2023 would reach 40 to 45, as there is currently a gap between the official bank rate, which is almost EGP 31 to USD. In the parallel market, you can buy it at EGP 35 to EGP 37 against USD, and this is an indicator for the next increase from the CBE.” The EGP recorded 39 per USD in non-deliverable forwards (NDFs).

As for the Egyptian Exchange (EGX), it has been affected since the closure of SVB. The EGX’s indices lost about 4.2% at the end of March 15th trading session, according to Al-Ahram newspaper.

High Demand for the Safe Haven

In the two days following SVB’s bankruptcy, gold prices were affected globally and locally. “Certainly, this issue of banks indicates a global crisis similar to 2008, a loss of confidence in the American [banking] system in general, followed by a collective decline and large losses in the European stock exchanges, many indicators reflecting an economic crisis that may exist, and of course, therefore, the safe haven became gold whose stocks are jumping up,” Hani Milad, Head of the Gold Division of the Chambers of Commerce, said in a call interview with Amr Khalil in his talk show ‘Min Masr’ on CBC Egypt channel.

In a short time, the bankruptcy of SVB bank was reflected in global gold prices because people rushed to turn their money into gold, which appeared to be a safe haven. On March 20th, the global price reached a resistance point as an ounce of gold exceeded $2000, according to the World Gold Council website.

Meanwhile, on March 18th, the price of 21-karat gold locally recorded a peak of EGP 2,110 per gram, and the price of a gram of 24-karat gold reached EGP 2,371.

Business Development in Egypt

Several tech firms and start-ups across the globe have been impacted by SVB’s demise, but many have managed to overcome the crisis. Aly Shalakany, Managing Partner of Acasia Ventures (a venture capital firm that invests in startups), tells Arab Finance: “A number of our investments were impacted, but fortunately, the matter was resolved within 72 hours of the collapse of the bank, and the crisis has, at least in the very short term, been averted. We are now working with our portfolio companies to help them manage their banking needs going forward.”

Now that a number of significant banks have shut down, business owners are looking for ways to secure their funds and assets. Shalakany adds: “Honestly, there was nothing anyone could have done to avoid the collapse of SVB. In my view, this is the result of poor asset management by SVB and regulatory failure in the US. What we are advising our portfolio companies to do is to create new banking relationships and to diversify these relationships in order to avoid a concentration of assets in any one financial institution.”

So far, the effect of SVB’s closure on the Egyptian economy is not clear. However, people are on the watch out for changes in gold prices, interest rates, and exchange rates as they try to ensure minimal impacts on their assets and businesses.