Rating agency Standard & Poor's downgraded three major Egyptian banks on Wednesday because of risk related to government bonds they hold.
Two publicly-owned bank, the National Bank of Egypt (NBE), Banque Misr (BM) and a private bank, the Commercial International Bank (CIB), saw their credit ratings drop one step to B-/C.
The downgrade comes after S&P cut Egypt’s credit rating to the same junk level of Greece on Monday.
“The negative outlook on NBE, BM and CIB mirrors the negative outlook on Egypt,” said in statement on Wednesday.
The tension-dogged North African nation currently holds a B- rating, six steps below investment grade, with a negative outlook, casting doubts on its ability to meet its obligations.
“In our view, NBE, BM and CIB face significant sovereign risk because they hold a high amount of government debt compared to their equity bases and earnings capacity,” S&P detailed.
Over the course of the past two years, Egypt’s government borrowed heavily from the domestic market to cover its towering budget deficit, which is projected to reach some LE200 billion ($33 billion), or 12 per cent of economic output by the end of the current 2012/14 fiscal year.
S&P foresees that continued political unrest will cause the downgrades to remain resilient in the coming period.
“In our opinion, political and social tensions in Egypt have escalated and are likely to remain elevated over the medium term,” The international agency explained.
“The increased polarisation between political forces is likely to weaken the sovereign's ability to deliver sustainable public finances, promote balance growth and respond to further economic or political shocks.”
Egypt’s economic woes were complicated by the sudden decision to postpone a much-needed $4.8 billion lifeline from the International Monetary Fund earlier in December. The loan delay is believed to be a result of a lack of confidence from the Fund’s side about Egypt’s ability to implement reform.