JEDDAH: The ratings on the other five Egyptian banks remain under review for possible further downgrade after Moody's Investors Service downgraded the ratings of five Egyptian banks - National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank and Bank of Alexandria, the ratings agency said in a statement Thursday. Wednesday's lowering of the banks' ratings is prompted by Moody's reassessment of the country's capacity to support its banking system, following the rating agency's decision Monday to lower the sovereign rating of Egypt to Ba2 (negative outlook) from Ba1 (stable outlook). "This reassessment has a negative impact on the supported bank deposit ratings. The review for potential further downgrade reflects concerns that the current political and social unrest will negatively impact the economy and, ultimately, the financial health of the banks," Moody's said. Moody's is concerned that, if not resolved quickly, the current period of political uncertainty could negatively impact foreign direct investment flows into the country and disrupt economic activity, thereby weakening the performance of the main economic sectors such as tourism, exports, textiles and real estate/construction. Moody's noted that the performance of the banks' credit portfolios, which are essentially domestic and concentrated, would likely deteriorate in a weakening macroeconomic environment. Moreover, asset quality deterioration would force banks to raise loan loss provisioning, thereby further weighing on their economic capital position and damaging their profitability. The downgrade of Egyptian banks' local currency (LC) deposit ratings is mainly driven by Moody's reassessment of the country's capacity to support its banking system, following the lowering of the government's ratings. As a result of the sovereign downgrade and greater uncertainty in the country's capacity to orchestrate and finance systemic support for its banking system, Egypt's SSI has been lowered to Ba1 from Baa2, which is one notch above the new government rating (Ba2). The repositioning of the SSI has caused the bank deposit and debt rating downgrades. Egyptian banks' standalone bank financial strength ratings (BFSRs) and LC deposit ratings have been placed under review for possible further downgrade to assess the potential impact of political and social instability on the banks' finances given the likely corresponding deterioration in the country's economic conditions. With reference to Commercial International Bank (CIB), whose BFSR is downgraded to D+, Moody's said that the bank's intrinsic financial health has weakened as a result of the potential impact of political instability on the country's economic conditions and the consequences for the bank's financial position given its large government securities portfolio (comprising around 12 percent of its total assets). Moody's review will also assess the possible impact of changes in the political landscape on the business franchise of banks.
