Limassol, December 12, 2017 -- Moody's Investors Service, ("Moody's") has
today's affirmed the B3 local-currency long-term deposit
ratings of the three government-owned banks, National Bank
of Egypt SAE (NBE), Banque Misr SAE (BM) and Banque du Caire SAE
(BdC) while upgrading their respective standalone baseline credit assessments
(BCAs) to b3 from caa1. Concurrently, the agency has affirmed
the B2 local-currency long-term deposit rating of Bank of
Alexandria SAE (Alex Bank) and B3 local-currency long-term
deposit rating of Commercial International Bank (Egypt) SAE (CIB),
as well as their b3 BCAs.
The primary driver for the upgrade of the government-owned banks'
BCAs is the improvement in the Egyptian operating environment, with
better growth prospects, stronger institutions and lower political
risk, which will support the solvency of the banks. The improving
trends in operating conditions was captured by Moody's in an increase
in Egypt's macro profile score, to "Very Weak +"
from "Very Weak", which in turn pushed up the government-owned
banks' BCAs to b3 from caa1. The affirmation of their local
currency deposit ratings at B3 balances the banks' improved standalone
profiles against the B3 rating of the government, to which the banks
are heavily exposed -- primarily in the form of government
security holdings -- and which constraints their ratings
at that level.
The primary driver for the affirmation of the BCAs and all ratings of
Alex Bank and CIB is their significant exposure to the government.
The b3 BCAs and all ratings of Alex Bank and CIB were affirmed despite
the improved operating conditions, as their standalone ratings are
already at the government's rating level. CIB's local
currency deposit rating is also constrained by the government's
rating and was affirmed at that level, while Alex Bank benefits
from a one-notch rating uplift due to Moody's affiliate support
assumptions and its local currency deposit rating was affirmed at B2.
Alex Bank is primarily owned and controlled by Intesa Sanpaolo S.p.A.
(Intesa, long-term deposits rating: A3 negative,
senior unsecured debt rating: Baa1 stable, BCA: baa3).
The banks' Caa1 foreign-currency long-term deposit
ratings, which are constrained by the country's foreign-currency
deposit ceiling, as well as their Not Prime short-term deposit
ratings have also been affirmed. The outlook on the long term deposit
ratings remains stable.
See the end of this press release for a list of affected ratings.
RATINGS RATIONALE
The primary driver for the upgrade of the government-owned banks'
BCAs to b3 from caa1 is the improvement in the Egyptian operating environment
(as captured by an increase in Egypt's macro profile score),
while their local currency B3 deposit ratings were affirmed, constrained
by the government's own rating of B3. The b3 BCAs and all
ratings of Alex Bank and CIB were affirmed despite the improved operating
conditions, as their standalone ratings are already at the government's
rating level. CIB's local currency deposit rating is also
constrained by the government's rating and was affirmed at that
level, while Alex Bank benefits from a one-notch rating uplift
due to Moody's affiliate support assumptions and its local currency
deposit rating was affirmed at B2.
----The improving operating environment prompts
change in macro profile
Today's ratings actions incorporate the improvement in the operating
environment, mainly better economic growth prospects, higher
institutional strength and lower political risk which will provide the
banks with a stronger footing to grow their business. These improvements
prompted the rating agency to change the macro profile assigned to banks
operating in Egypt to "Very Weak +" from "Very Weak". Egypt's
"Very Weak +" macro profile score takes into account downside risks
related to currency volatility, which pose asset quality and profitability
risks, as well as weaknesses in the country's loan recovery
and foreclosure framework. For a detailed analysis of Egypt's
macro profile please click on the following link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1100869
---The government-owned banks
The upgrade of National Bank of Egypt SAE's, Banque Misr SAE's
and Banque du Caire SAE's BCAs is driven by Moody's expectation
that the banks' solvency and funding positions will continue to
benefit from the improvement in the operating environment. Despite
modest capitalization levels (shareholder's equity to total assets
around 6.5%), compared with rated domestic peers (around
10%), NBE and BM have enhanced their solvency as the quality
of their loan books has considerably improved in recent years, with
the ratio of non-performing loans (NPLs) to gross loans declining
to below 4.0% based on most recent numbers provided by the
banks, from above 10% in 2014. Provision coverage
against NPLs is relatively high with the ratio of loan loss reserves to
NPLs above 100%. BdC's solvency will benefit further
from the initial public offering planned for 2018, which will increase
its capital. Their b3 BCAs also incorporate these banks'
high profitability, with return on assets above 1.4%,
as well as their strong funding profiles and high liquidity buffers,
with the ratio of liquid assets to tangible banking assets above 50%.
The rating action also reflects these banks' high exposure to the
government, with investments in government securities ranging between
40% - 43% of their asset base according to the most
recently available financial statements which remains a key concentration
risk rendering the banks' vulnerable to sovereign credit strength
and linking their credit profiles with the sovereign's.
---CIB and Alex Bank
The ratings affirmation reflects Moody's expectation that CIB's
and Alex Bank's performance will remain strong and that their financial
fundamentals, mainly asset quality and capitalization metrics,
will benefit from the improvement in the operating environment.
CIB and Alex Bank maintain higher-than-peers NPLs but benefit
from thicker capital buffers and cash provisions, strong earning
power, stable mainly deposit-based funding structures and
high liquidity buffers.
The shareholder's equity to total assets ratio for CIB was 9.4%
and the Basel III leverage ratio was 7.7% as of September
2017. Alex Bank's corresponding ratios were 11.18%
and 8.37%. The two banks' NPL ratios were 6.9%
and 5.5% respectively; while their coverage ratios
were high at 155% and 159%, buffering them against
unexpected losses. As of September 2017 CIB's reported annualised
return on assets was 2.6% and Alex Bank's 3.81%.
Deposits funded 88% of CIB's assets while the ratio of liquid
assets to tangible assets was a high 49%. The corresponding
ratios for Alex Bank were 82% and 56%.
Nevertheless these banks' standalone credit profiles are highly
correlated with the government's owing to their high exposure to
Egyptian government securities. This high concentration makes them
vulnerable to sovereign credit risk and constrains their ratings.
As of September 2017, around 17% of Alex Bank's and
44% of CIB's assets were invested in Egyptian government
securities.
While the deposit rating of CIB is constrained by the Egyptian government's
rating of B3, Moody's methodology allows for the deposit or
bond rating of a bank to be positioned higher if support is expected from
a stronger foreign affiliate, which is the case with Alex Bank.
Alex Bank's affirmation of its B2 local currency deposit rating
is derived from a BCA of b3 and one notch of affiliate support uplift,
reflecting Moody's assessment of a Moderate probability of support
from its high-rated foreign parent, Intesa. The one
notch uplift reflects Intesa's controlling 70.25% ownership
stake in Alex Bank, the clear association of Alex Bank with the
Intesa brand and the long dated commitment of Intesa to its Egyptian subsidiary.
The Moderate support assumption also considers the high-risk Egyptian
environment reflected in the B3 Egyptian government bond ratings.
LIST OF AFFECTED RATINGS
Issuer: National Bank of Egypt SAE
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to b3 from caa1
....Baseline Credit Assessment, Upgraded
to b3 from caa1
....LT Counterparty Risk Assessment,
Upgraded to B2(cr) from B3(cr)
Affirmations:
....LT Bank Deposits (Local Currency),
Affirmed B3, Outlook Remains Stable
....LT Bank Deposits (Foreign Currency),
Affirmed Caa1, Outlook Remains Stable
....ST Bank Deposits, Affirmed NP
....ST Counterparty Risk Assessment,
Affirmed NP(cr)
Outlook Actions:
....Outlook, Remains Stable
Issuer: Banque Misr SAE
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to b3 from caa1
....Baseline Credit Assessment, Upgraded
to b3 from caa1
....LT Counterparty Risk Assessment,
Upgraded to B2(cr) from B3(cr)
Affirmations:
....LT Bank Deposits (Local Currency),
Affirmed B3, Outlook Remains Stable
....LT Bank Deposits (Foreign Currency),
Affirmed Caa1, Outlook Remains Stable
....ST Bank Deposits, Affirmed NP
....ST Counterparty Risk Assessment,
Affirmed NP(cr)
Outlook Actions:
....Outlook, Remains Stable
Issuer: Banque du Caire SAE
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to b3 from caa1
....Baseline Credit Assessment, Upgraded
to b3 from caa1
....LT Counterparty Risk Assessment,
Upgraded to B2(cr) from B3(cr)
Affirmations:
....LT Bank Deposits (Local Currency),
Affirmed B3, Outlook Remains Stable
....LT Bank Deposits (Foreign Currency),
Affirmed Caa1, Outlook Remains Stable
....ST Bank Deposits, Affirmed NP
....ST Counterparty Risk Assessment,
Affirmed NP(cr)
Outlook Actions:
....Outlook, Remains Stable
Issuer: Commercial International Bank (Egypt) SAE
Affirmations:
....LT Bank Deposits (Local Currency),
Affirmed B3, Outlook Remains Stable
....LT Bank Deposits (Foreign Currency),
Affirmed Caa1, Outlook Remains Stable
....ST Bank Deposits, Affirmed NP
....Adjusted Baseline Credit Assessment,
Affirmed b3
....Baseline Credit Assessment, Affirmed
b3
....LT Counterparty Risk Assessment,
Affirmed B2(cr)
....ST Counterparty Risk Assessment,
Affirmed NP(cr)
Outlook Actions:
....Outlook, Remains Stable
Issuer: Bank of Alexandria SAE
Affirmations:
....LT Bank Deposits (Local Currency),
Affirmed B2, Outlook Remains Stable
....LT Bank Deposits (Foreign Currency),
Affirmed Caa1, Outlook Remains Stable
....ST Bank Deposits, Affirmed NP
....Adjusted Baseline Credit Assessment,
Affirmed b2
....Baseline Credit Assessment, Affirmed
b3
....LT Counterparty Risk Assessment,
Affirmed B1(cr)
....ST Counterparty Risk Assessment,
Affirmed NP(cr)
Outlook Actions:
....Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Melina Skouridou, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
