Actions reflect Moody's downgrade of Egypt's sovereign rating and the likely weakening of the economy, following the political turmoil
Limassol, March 21, 2011 -- Moody's Investors Service has today downgraded the foreign-currency
(FC) deposit ratings of five Egyptian banks by one notch to B1 from Ba3
(i) National Bank of Egypt; (ii) Banque Misr; (iii) Banque du
Caire; (iv) Commercial International Bank; and (v) Bank of Alexandria.
The local-currency (LC) deposit ratings were also downgraded by
two notches to Ba3 from Ba1 for the three state-owned banks (i)
National Bank of Egypt; (ii) Banque Misr; and (iii) Banque du
Caire, and by one notch to Ba2 from Ba1 for Commercial International
Bank. The LC deposit rating of Bank of Alexandria was confirmed
at Ba1, reflecting parental support from Bank Intesa Sanpaolo (Aa2/P-1/B-).
Today's downgrades were prompted by:
1. The downgrade of the country's foreign-currency
deposit ceiling to B1 from Ba3.
2. Moody's reassessment of most of the banks' standalone
credit strength, reflected in their bank financial strength rating
(BFSR), mainly due to their direct exposure to a lower rated sovereign
and the deteriorating economic conditions.
Concurrently, Moody's has assigned negative outlooks to the
ratings of all five banks. The outlooks reflect Moody's concerns
that the current political situation could negatively affect the economy
and the banks' financial performance beyond what is reflected in
its base case scenario.
The downgrade of Egypt's rating has also had a negative impact on
the country's capacity to support its banking system, causing the
repositioning of the country's systemic support indicator (SSI) to Ba2
from Ba1. This, however, does not have any direct impact
on the banks' deposit ratings.
These rating actions conclude Moody's review of these bank ratings
-- initiated on 2 February 2011 -- triggered
by the political turmoil in Egypt.
For a full list of the affected ratings, please see the end of the
press release.
ACTION ON FC DEPOSIT RATINGS DUE TO LOWERING OF COUNTRY CEILING
The downgrade of all five rated banks' long-term FC deposit
ratings is due to the downgrade of the country's FC deposit ceiling
to B1 from Ba3. As a result, all FC deposit ratings are effectively
constrained by the corresponding ceiling at B1, which reflects moratorium
risks on FC deposits that currently exist in Egypt within the context
of declining FC assets held by the Central Bank of Egypt (CBE).
LOWER LC DEPOSIT RATINGS DUE TO WEAKER STANDALONE CREDIT STRENGTH
The downgrade of the LC deposit ratings announced today reflects a weakening
in the stand-alone credit profile of four rated banks: National
Bank of Egypt, Banque Misr, Commercial International Bank
and Bank of Alexandria. The repositioning of their stand-alone
Bank Financial Strength Ratings (BFSRs) has been the key rating driver
behind the bank LC deposit rating downgrades announced today.
The lower BFSRs take into account the heightened sovereign risk that exists
on their balance sheets through their exposure to government securities.
The banks' sovereign exposure forms a significant part of their
balance sheet and comprises multiple times of their equity base,
especially for the state-owned banks that ranges between 3 to 6
times. As a result, Moody's has capped the state-owned
banks' LC deposit ratings at the new sovereign rating level of Ba3;
these ratings no longer benefit from systemic support.
In addition, Moody's says that the intrinsic financial health of
banks in Egypt has weakened as a result of the potential affect of political
developments on Egypt's economic conditions and the negative consequences
for their financial position. Concerns regarding a potential capital
flight and pressure on the banks' liquidity positions have receded
as local depositors' confidence in the local banks has not been
impaired. However, Moody's notes that liquidity risks
have not entirely diminished, because the political situation is
still relatively fluid. Political-event risk remains high
in Egypt, constituting a contingent liquidity risk for the local
banks.
NEGATIVE OUTLOOK
All rated Egyptian banks' ratings have been assigned a negative outlook
to reflect considerable downside risks to our base case scenario.
Moody's notes that the current period of political uncertainty in Egypt
-- and in the wider Middle East and North Africa (MENA)
region -- has negatively affected foreign direct investment
flows into the country and has disrupted economic activity.
This has weakened the performance of the main economic sectors,
such as tourism and Egyptian workers' incoming remittances with
high level of uncertainty as to when they will recover. Moody's
notes that the performance of the banks' credit portfolios, which
are essentially domestically concentrated, would likely deteriorate
in a weakening macroeconomic environment. Moreover, asset-quality
deterioration would force the banks to raise their loan-loss provisioning
levels, impairing their profitability and exerting further negative
pressure on their capital positions.
BANK RATINGS AFFECTED BY TODAY'S RATING ACTION
- National Bank of Egypt: The BFSR was downgraded to D-
from D; the long-term LC deposit rating was downgraded by
two notches to Ba3 from Ba1 and its long-term FC deposit rating
by one notch to B1 from Ba3, constrained by the respective sovereign
ceiling. The bank's senior unsecured FC debt, issued through
its Nile Finance Ltd special-purpose vehicle, was also downgraded
by two notches to Ba3 from Ba1. All the ratings, including
its BFSR, have a negative outlook. All short-term
deposit ratings remain unchanged at Not-Prime (NP).
- Banque Misr: The BFSR was downgraded to E+ from D-;
the long-term LC deposit rating was downgraded by two notches to
Ba3 from Ba1 and its long-term FC deposit rating by one notch to
B1 from Ba3, constrained by the respective sovereign ceiling.
All the ratings have a negative outlook, with the exception of its
BFSR of E+ (mapping to a baseline credit assessment of B1) that has
a stable outlook. All short-term deposit ratings remain
unchanged at NP.
- Banque du Caire: The long-term LC deposit rating
was downgraded by two notches to Ba3 from Ba1 and its long-term
FC deposit rating by one notch to B1 from Ba3, constrained by the
respective sovereign ceiling. All the ratings, including
its BFSR that was confirmed at D-, have a negative outlook.
All short-term deposit ratings remain unchanged at NP.
- Commercial International Bank: The BFSR was downgraded
to D from D+; the long-term LC deposit rating was downgraded
by one notch to Ba2 from Ba1 and its long-term FC deposit rating
was downgraded by one notch to B1 from Ba3, constrained by the respective
sovereign ceiling. All the ratings, including its BFSR,
have a negative outlook. All short-term deposit ratings
remain unchanged at NP.
- Bank of Alexandria: The BFSR was downgraded to D-
from D; the long-term FC deposit rating was downgraded by
one notch to B1 from Ba3, constrained by the respective sovereign
ceiling. All the ratings, including its BFSR and its long-term
LC deposit rating that was confirmed at Ba1, have a negative outlook.
All short-term deposit ratings remain unchanged at NP.
PREVIOUS RATING ACTIONS & PRINCIPAL METHODOLOGIES
Moody's previous rating actions on the five rated Egyptian banks were
implemented on 2 February 2011 as follows:
(i) National Bank of Egypt: Its LC deposit ratings were downgraded
by two notches to Ba1/NP from Baa2/P-2 and its long-term
FC deposit rating by one notch to Ba3 from Ba2. The bank's senior
unsecured FC debt, issued through Nile Finance Ltd, was also
downgraded by two notches to Ba1 from Baa2. All the ratings,
including its BFSR of D, were placed on review for further possible
downgrade, except the FC deposit rating, which had a negative
outlook.
(ii) Banque Misr: Its LC deposit ratings were downgraded by two
notches to Ba1/NP from Baa2/P-2 and its long-term FC deposit
rating by one notch to Ba3 from Ba2. All the ratings, including
its BFSR of D-, were placed on review for further possible
downgrade, except the FC deposit rating, which had a negative
outlook.
(iii) Banque du Caire: Its LC deposit ratings were downgraded by
one notch to Ba1/NP from Baa3/P-3 and its long-term FC deposit
rating by one notch to Ba3 from Ba2. All the ratings, including
its BFSR of D-, were placed on review for further possible
downgrade, except the FC deposit rating, which had a negative
outlook.
(iv) Commercial International Bank: Its LC deposit ratings were
downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term
FC deposit rating by one notch to Ba3 from Ba2. The bank's BFSR
was downgraded to D+ from C-. All the ratings,
including its BFSR of D+, were placed on review for further
possible downgrade, except the FC deposit rating, which had
a negative outlook.
(v) Bank of Alexandria: Its LC deposit ratings were downgraded by
two notches to Ba1/NP from Baa2/P-2 and its long-term FC
deposit rating by one notch to Ba3 from Ba2. All ratings,
including its BFSR of D, were placed on review for further possible
downgrade, except the FC deposit rating which had a negative outlook.
The principal methodologies used in these ratings were "Bank Financial
Strength Ratings: Global Methodology" published in February 2007
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology" published in March 2007.
At the end of June 2010, National Bank of Egypt had posted total
assets of EGP298.6 billion (USD53.7 billion), Banque
Misr reported total assets of EGP178.9 billion (USD30.5
billion), Banque du Caire had total assets of EGP44.2 billion
(USD7.6 billion) and Bank of Alexandria had total assets of EGP34.1
billion (USD5.9 billion). At the end of December 2010,
Commercial International Bank (Egypt) reported total assets of EGP75.4
billion (USD12.9 billion). All the banks are headquartered
in Cairo, Egypt.
REGULATORY DISCLOSURES
Information sources used to prepare the credit ratings are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Service information.
Moody's Investors Service considers the quality of information available
on the issuers or obligations satisfactory for the purposes of maintaining
a credit rating.
The rating for Bank of Alexandria was initiated by Moody's Investors Service
and was not requested by the issuer. This rated entity participated
in the credit rating process. The rated entity or its related third
party, if any, did provide the rating committee access to
the books, records and other relevant internal documents of the
rated entity.
The ratings have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from those disclosures.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the three years preceding the Credit Rating Action. Please see
the ratings disclosure page www.moodys.com/disclosures on
our website for further information.
.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Limassol
Nondas Nicolaides
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades five Egyptian banks; negative outlooks assigned
