Why the market accepted the Central Bank of Egypt’s freeze on cash dividends without batting an eyelid. Picking up where we left off yesterday: The Central Bank of Egypt has barred banks from paying out cash dividends from 2020 profits to ensure the system has sound as covid continues to weigh on business sentiment — and, potentially, credit quality.

Good medicine, but it tastes like [redacted]. We rang up a couple of the smartest bankers we know yesterday, expecting to listen to tirades. Instead, what we heard — even under a grant of anonymity — is that it is smart policy, even if the medicine tastes a bit sour. The bottom line: As the lender of last resort and guarantor of deposits, the central bank is taking measures to (a) keep liquidity in the system as high as possible and (b) maximize every bank’s ability to respond flexibly if this whole covid thing drags on — and takes credit quality down with it.

But doesn’t this send a bad signal to international investors? No. Why? In a single word: Covid. Top execs at head offices of foreign-owned banks with branches here have already been through this. To take but one example, the European Central Bank only reversed late last month what was effectively a ban on dividend payouts — and imposed really strict limits on what they’re allowed to do going forward.

And the CBE has done this before on a one-off basis, as when it asked Credit Agricole last April to trim back its proposed dividend.

What about fund managers? They won’t be delighted, but they knew it was a risk. Last year, many of them (facing redemptions from their own customers) pestered execs to keep paying dividends even as CEOs wanted to keep cash on hand to respond to the fallout from covid.

And yes, retail investors will howl — but that was expected, right? When you see a share as your ticket to a lunch box at an AGM…

Will bank stocks come under pressure? Credit Agricole, a dividend play for investors, was the EGX30’s worst performer on Tuesday (-6.2%) and was down 3.3% at the closing bell yesterday. In the long run, the market already knew that Credit Agricole needed to hike its capital to meet the CBE’s new EGP 5 bn floor, and index heavyweight CIB is a growth stock that pays dividends, not a pure dividend play. COMI shares closed in the green both Tuesday and Wednesday