Moody s head office, Boston, USA. Getty Image.
Moody's upheld the long-term deposit ratings for three state-owned banks, including the National Bank of Egypt (NBE), Banque Misr, and Banque Du Caire, at CAA1.
Additionally, the agency reaffirmed the rating of the largest private bank in Egypt, Commercial International Bank (CIB), at CAA1, while maintaining the rating of the Bank of Alexandria at B3.
Moody's explained that the change in outlook to negative reflects the escalating risks associated with Egypt's credit profile, primarily stemming from ongoing challenges in the macroeconomic landscape and the need for exchange rate rebalancing.
“This negative outlook reflects broader issues such as foreign currency shortages, high interest rates, inflation, and challenging operating conditions, which dampened consumer confidence, compromised borrowers' ability to repay, and increased funding costs for the banks,” Moody’s said.
The rating agency emphasized that upgrading the banks' ratings would require improvements in the operating environment and the government's credit profile, in addition to the banks' ability to maintain sufficient foreign currency liquidity.
In October, Moody's downgraded the ratings of these five banks to CAA1 and B3, citing concerns that their earnings and capital assets might not be sufficient to meet their foreign currency liabilities.
Egypt has been grappling with a severe shortage of foreign currency, which initially emerged following the Russia-Ukraine war and the subsequent outflow of around $22 billion from the country.
Recently, Moody’s changed the Egyptian economy’s future outlook from stable to negative due to the widening disparity between the official and parallel exchange rates for the Egyptian pound (EGP) against the US dollar (USD).
Currently, the USD is being traded at over EGP 60 in the parallel market, while the official exchange rate remains at nearly EGP 31 per dollar.
However, this outlook does “not take into account the government’s current efforts” amid exceptional global and local circumstances, Minister of Finance Mohamed Maait said, commenting on the Moody's decision.
The agency anticipates that the International Monetary Fund (IMF) will increase its existing $3 billion loan programme for Egypt to $10 billion upon the completion of the IMF mission's visit to Cairo for discussions on the first and second reviews.
In 2022, the IMF approved a 46-month loan programme for Egypt; however, the scheduled reviews for March and September 2023 were postponed due to Egypt's lack of progress in meeting the IMF's conditions.
As the loan agreement progresses, the IMF's role becomes more crucial in providing additional financing and assisting in alleviating the severe US dollar shortage crisis in Egypt.
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