Moody's Investors Service has downgraded the local-currency deposit rating of five Egyptian banks: National Bank of Egypt to Caa1 from B3, Banque du Caire to Caa1 from B3, Banque Misr to Caa1 from B3, Commercial International Bank (CIB) to Caa1 from B3 and Bank of Alexandria to B2 from B3.

The step comes after the credit-rating agency decided to downgrade Egypt's government bond rating to Caa1 from B3.

According to a statement issued by the agency on Tuesday, the main factors driving Moody’s rating actions are:

1) The Egyptian government's reduced ability to support the banks, which has primarily affected state-owned banks National Bank of Egypt, Banque du Caire and Banque Misr.

2) The high credit linkages between the banks' balance sheets and sovereign credit risk.

3) The downgrade of the foreign currency deposit ceiling for Egypt.

Moody's expects further downgrades if the banks loss absorption capacity weakens. Improvements in the operating environment and the sovereign's credit risk profile could upgrade Egypt's bank ratings according to Moody's.