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Rating Action:

Moody's downgrades five Egyptian banks; on review for further possible downgrade

02 Feb 2011

Actions reflect Moody's downgrade of sovereign rating and likely weakening of economy amid uncertainties

Limassol, February 02, 2011 -- Moody's Investors Service has today 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 on the five banks remain under review for possible further downgrade.

Today'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 on 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.

For a full list of ratings affected please see the end of the press release.

RATINGS RATIONALE

Today's downgrade of Egyptian banks' local currency (LC) deposit ratings is mainly driven by our reassessment of the country's capacity to support its banking system, following the lowering of the government's ratings. Under Moody's methodology, a government's credit strength serves as a key input in assigning the country's systemic support indicator (SSI). The latter measures the capacity of a country to support its banking system which, in turn, can provide uplift to the deposit and debt ratings of a bank. 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). This repositioning of the SSI has caused the bank deposit and debt rating downgrades announced today.

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. 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 notes 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. Moody's review will also assess the possible impact of changes in the political landscape on the business franchise of banks with significant government-related lending, as well as any possible deposit flows outside the banking system.

With reference to Commercial International Bank (CIB), whose BFSR is downgraded to D+, Moody's says that, notwithstanding CIB's relatively strong financial fundamentals, 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% of its total assets).

BANK RATINGS AFFECTED BY TODAY'S RATING ACTION

- National Bank of Egypt: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. The bank's senior unsecured FC debt, issued through its Nile Finance Ltd special purpose vehicle registered in the Cayman Islands, is also downgraded by two notches to Ba1 from Baa2. All ratings, including its bank financial strength rating (BFSR) of D, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Banque Misr: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. All ratings, including its bank financial strength rating (BFSR) of D-, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Banque du Caire: Local currency (LC) deposit ratings are downgraded by one notch to Ba1/NP from Baa3/P-3 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. All ratings, including its bank financial strength rating (BFSR) of D-, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Commercial International Bank: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. The bank's financial strength rating (BFSR) is downgraded to D+ from C-. All ratings, including its bank financial strength rating (BFSR) of D+, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Bank of Alexandria: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. All ratings, including its bank financial strength rating (BFSR) of D, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

PREVIOUS RATING ACTIONS & PRINCIPAL METHODOLOGIES

Moody's previous rating actions on the five rated Egyptian banks were implemented as follows:

(i) National Bank of Egypt: On 5 August 2010 Moody's assigned a Baa2 rating with a stable outlook to the US$600 million senior unsecured bonds issued by Nile Finance Limited, NBE's special purpose vehicle. The bonds are unconditionally and irrevocably guaranteed by National Bank of Egypt.

(ii) Banque Misr: On 30 December 2009 Moody's confirmed BM's LC deposit ratings at Baa2/P-2.

(iii) Banque du Caire: On 30 December 2009 Moody's downgraded BdC's LC deposit ratings by one notch to Baa3/P-3 from Baa2/P-2.

(iv) Commercial International Bank: On 30 December 2009 Moody's downgraded CIB's LC deposit ratings by one notch to Baa2/P-2 from Baa1/P-2.

(v) Bank of Alexandria: On 30 December 2009 Moody's confirmed BoA's LC deposit ratings at Baa2/P-2.

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 (US$53.7 billion), Banque Misr reported total assets of EGP178.9 billion (US$30.5 billion), and Banque du Caire had total assets of EGP44.2 billion (US$7.6 billion). At the end of September 2010, Commercial International Bank (Egypt) reported total assets of EGP71.2 billion (US$12.3 billion), while Bank of Alexandria had total assets of EGP34.1 billion (US$5.9 billion) at the end of June 2010. All banks are headquartered in Cairo, Egypt.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating 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 issuer or obligation 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 rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

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

Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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Moody's downgrades five Egyptian banks; on review for further possible downgrade
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