Fitch Ratings revises down ratings for four major Egyptian banks to B

Doaa A.Moneim , Wednesday 17 May 2023

Fitch Ratings downgraded on Wednesday four Egyptian banks' Long-Term Issuer Default Ratings (IDRs) to 'B' from 'B+' and Viability Ratings (VRs) to 'B' from 'B+', and maintained their outlooks as Negative.

NBE and Banque Misr . Al-Ahram
NBE and Banque Misr . Al-Ahram


The four banks are the National Bank of Egypt (NBE), Banque Misr (BM), Banque Du Caire (BDC) and the Commercial International Bank (CIB).

BDC and BM are among the banks that Egypt intends to sell stakes in under the government’s initial public offering programme (IPO) programme.

These downgrades follow a recent downgrade of Egypt's sovereign credit rating to 'B' with negative outlook.

Fitch said that “such downgrades reflect rising external financing risks given high external financing requirements, constrained external financings conditions and the sensitivity of Egypt's broader financing plan to investor sentiment.”

“This comes against a background of high uncertainty on the exchange-rate trajectory, and reduced external liquidity buffers.”

Fitch also revised the Government Support Ratings (GSRs) of the four banks to 'b-' from 'b'.

“The Egyptian banking sector recorded a record net foreign liability position of $14 billion at end of March, as banks' ability to build up foreign assets was hampered by tight foreign currency liquidity and the sovereign's high gross external financing requirements,” said Fitch.

Moreover, non-resident portfolio holdings of local-currency treasury bills stood at around $11 billion at end of 2022, representing a still critical source of vulnerability for banks' net foreign assets in case of further large portfolio outflows, according to Fitch.

For these bank’s asset quality under pressure, Fitch downgraded their risk profile and asset-quality scores to 'b'/negative from 'b+'/negative, driven mainly by high sovereign exposure, mainly through investments in government securities.

However, the banking sector non-performing loans (NPL) ratio remained moderate at 3.4 percent at end of 2022 compared to 3.5 percent at end of 2021, according to Fitch

Meanwhile, Fitch expected some asset-quality pressures these banks to face during 2023 because of the macroeconomic challenges.

Yet, Fitch pointed out that these pressures should be manageable for banks as net loans made up only 36 percent of sector assets at end of 2022 and about 40 percent of sector loans were to state companies.

On the other hand, Fitch stressed that earnings and profitability remain a point of strength of the Egyptian banking sector.

“Yields on sovereign securities have increased sharply since March 2022, benefitting profitability, although it erodes banks' other comprehensive income due to their typically large shares of treasury assets.”

“The four banks' strong provisioning buffers and pre-impairment operating profitability also provide good cushions against weakening credit conditions,” said Fitch.

On the other hand, Fitch said that issuing high-yield certificates of deposits (CDs) recently has weaken NBE's and BM's, estimating that CDs make up over half of total reported deposits at both banks.

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