Today's actions follow upgrade of Egypt's bond rating to B3 from Caa1
Limassol, April 09, 2015 -- Moody's Investors Service has today upgraded to B3 from Caa1 the
local-currency (LC) deposit ratings of National Bank of Egypt SAE,
Banque Misr SAE, Banque Du Caire SAE and Commercial International
Bank (Egypt) SAE as well as the LC deposit ratings of Bank of Alexandria
SAE to B2 from B3. The standalone ratings of all five banks were
also upgraded by one notch.
Today's rating actions capture (1) the improved operating environment
in Egypt, which will benefit the banks' business prospects
and asset quality; (2) the improved quality of the banks' liquidity
buffers; and (3) the government's improved capacity to support
these banks, in case of need. These actions follow the improvement
in Egypt's sovereign creditworthiness, as reflected by Moody's
decision to upgrade Egypt's bond ratings to B3 from Caa1 (please see "Moody's
upgrades Egypt to B3 with a stable outlook ").
Concurrently, the banks' foreign--currency (FC) deposit
ratings were upgraded to Caa1 from Caa2 to reflect the increase in the
FC deposit ceiling for Egypt to Caa1.
For a full list of affected ratings please see the end of this press release.
RATINGS RATIONALE
---THE IMPROVEMENT IN THE OPERATING ENVIRONMENT
The upgrades reflect Moody's expectation that Egypt's improving
macroeconomic performance and easing external vulnerabilities will support
increased lending opportunities. The rating agency expects mid-double-digit
loan growth for the system over 2015 while GDP growth is forecasted to
accelerate to 4.5% for the fiscal year ending (FYE) June
2015 from 2.2% in FYE 2014. The higher economic activity
will likely also improve local borrowers' repayment capacity,
which will benefit the banks' asset quality.
At the same time, the reduced credit risk associated with the government
of Egypt has improved the quality of the banks' government-related
assets, including their liquidity reserves. The rating agency
highlights that the Egyptian banks' large exposures to government securities
imply a high convergence between their credit risk profile and the sovereign's
credit quality. According to the latest available financial statements,
government securities accounted for 11.2x of NBE's tangible
common equity, 8.3x for Banque Misr, 6.7x for
Banque Du Caire, 5.1x for CIB, and 2.3x for
Bank of Alexandria. From a liquidity standpoint, the linkage
between the quality of the reserves and the sovereign creditworthiness
is also high, with a ratio of liquid assets to total tangible assets
ranging between 50% and 70% at the five banks. The
bulk of these liquid assets are government securities.
---IMPROVED GOVERNMENT CAPACITY TO SUPPORT BANKS
Today's rating actions also reflect Moody's view of a strengthening
in the capacity of the government to provide support to the banks,
if needed. Specifically, the upgrade of the three wholly
government-owned banks' LC deposit ratings to B3 from Caa1
also reflects the improved capacity of the Egyptian government to support
the banks in case of need, as implied by the upgrade of the sovereign's
bond rating.
Although the rating agency continues to assume a very high probability
of government support for CIB and a high probability of government support
for Bank of Alexandria, the deposit ratings of these two banks are
rated on par with the government on a standalone basis and, as such,
do not benefit from any support uplift.
INDIVIDUAL BANKS
---National Bank of Egypt
NBE's ratings reflect (1) the bank's dominant franchise as
the largest bank in Egypt and its stable deposit based funding structure
(at 91% of non-equity funding); (2) the improvement
in the bank's asset quality, which is mainly driven by the
restructuring and write-offs of legacy problem loans (as of June
2014, NBE's non-performing loans (NPLs)-to-gross
loans ratio declined to 5.0% from 9.0% in
June 2011); and (3) Moody's assumption of a very high probability
of government support given the bank's 100% government ownership
and its systemic importance, reflecting its 27% market share
in deposits.
Nonetheless, the rating agency believes asset risk remains elevated.
Despite good diversification of the loan book across different sectors
and improvement in the bank's risk management capabilities in the
last few years, NBE's asset risk remains elevated because
of the bank's high asset concentrations, and still developing
risk-management tools. NBE's ratings also capture
its weaker-than-peers' capital buffers, with
a Tier 1 ratio of 7.0% as of June 2014 and a Moody's
adjusted tangible common equity (TCE) to risk-weighted assets (RWAs)
ratio of 4.6% as of June 2014.
As part of its standard global adjustments to make banks' financial
statements more comparable, Moody's adjusts the Egyptian banks
RWAs by assigning a 100% risk weight to government securities,
which are zero-risk-weighted in the banks' calculations.
---Banque Misr
Banque Misr's ratings reflect (1) the bank's dominant franchise
as the second-largest bank in Egypt with the largest branch network
and its stable deposit based funding structure (at 94% of non-equity
funding); (2) the improvement in the bank's still relatively
weak asset quality, which is mainly driven by the restructuring
and write-offs of legacy problem loans (as of June 2014,
Banque Misr's NPLs-to-gross loans ratio declined to 15%
according to Moody's estimates from 40% in 2010); and
(3) Moody's view of a very high probability of government support
given the bank's 100% government ownership and its systemic
importance owing to its 17% market share in deposits.
Nonetheless, asset risk remains elevated particularly in view of
the bank's high asset concentrations and --although
improved in the last few years-- the bank's still
developing risk-management tools. Banque Misr's ratings
also capture the bank's relatively weak capital buffers given its
credit profile. As of June 2014, Banque Misr reported a 10.4%
Tier 1 ratio and 5.9% Moody's adjusted TCE to RWA
ratio.
---Banque Du Caire
BdC's ratings reflect: (1) the bank's franchise as the
third-largest government-owned bank in Egypt and its stable
deposit-based funding profile (at 95% of non-equity
funding); (2) the lower level of NPLs relative to its domestic peers
(as of December 2013, BdC's NPLs to gross loans ratio was
2.0%); and (3) Moody's assumption of a very high
probability of government support given the bank's 100% government
ownership (through Banque Misr) and its systemic importance because of
its 4.4% market share in deposits.
Nevertheless, asset risk remains elevated in the context of high
loan growth in the last three years and given the bank's high asset
concentrations and, despite improvement in the last few years,
BdC's still developing risk-management tools. BdC's
ratings also capture its relatively weak capital buffers. As of
December 2013, BdC reported an 8.0% Tier 1 ratio and
7.2% Moody's adjusted TCE to RWA ratio.
--- Commercial International Bank
CIB's ratings reflect: (1) the bank's strong franchise
as the largest private-sector bank in Egypt and its stable deposit-based
funding profile (at 95% of non-equity funding); (2)
the bank's better-than-peers' profitability,
with a return on average assets (RoAA) of 2.9% as of December
2014 and a relatively lower level of NPLs (as of December 2014,
the ratio of NPLs to gross loans was 4.7%); as well
as (3) the bank's stronger-than-peers' capital
buffers. As of December 2014, CIB reported a 13.0%
Tier 1 ratio and Moody's adjusted 8.8% TCE to RWA
ratio.
Although Moody's also notes that CIB benefits from more advanced
risk-management tools compared with its government-owned
peers, asset risk remains elevated in view of the bank's high
investment holdings and loan concentrations.
---Bank of Alexandria
BoA's ratings reflect: (1) the bank' franchise as the
third-largest privately owned bank and its stable deposit-based
funding profile (at 92% of non-equity funding); (2)
the restructuring and write-offs of mainly legacy problem loans
that have improved its asset quality (as of December 2014, BoA's
NPLs -to-gross loans ratio declined to 6.6 %
from 9.5% in December 2012); and (3) the bank's
better-than-peers' capital buffers with a Tier 1 ratio
of 14.0% and Moody's adjusted TCE to RWAs ratio of
12.2% as of December 2014. BoA's B2 deposit
ratings also benefit from one notch of uplift as a result of the ratings
agency's assumption of a moderate probability of affiliate support
from Intesa Sanpaolo SPA (deposits Baa2 on review for upgrade, BCA
baa3), BoA's parent bank, in case of need. Intesa
Sanpaolo SPA has majority control, with a 70.25% shareholding.
Although BoA's risk-management tools benefit from support
from Intesa, the rating agency believes asset risk remains elevated
particularly in view of the bank's high (although lower than peers)
asset concentrations.
WHAT COULD MOVE THE RATINGS DOWN/UP
The banks' ratings could be upgraded following further improvements in
the operating environment and the sovereign's credit-risk profile,
which will also have a positive impact on the banks' financial metrics
and specifically their asset quality metrics and business generation capabilities.
The ratings of the government-owned banks would likely also benefit
from an improvement in their capitalisation.
Downward rating pressure would develop following (1) a weakening in the
operating environment and sovereign creditworthiness; or (2) a decline
in the banks' loss-absorption capacity, specifically related
to their asset-quality, profitability and capital.
LIST OF AFFECTED RATINGS
National Bank of Egypt SAE
-LC deposit ratings: Upgraded to B3 from Caa1, stable
outlook
-FC deposit ratings: Upgraded to Caa1 from Caa2, stable
outlook
-The backed senior unsecured FC debt rating (issued through its
Nile Finance Limited special-purpose vehicle) has been upgraded
to B3 from Caa1, stable outlook.
-ADJ BCA upgraded to caa1 from caa2
-BCA upgraded to caa1 from caa2
-Short-term Not Prime ratings are affirmed
+++++++++++++++++++++++++++++++++++
Banque Misr SAE
-LC deposit ratings: Upgraded to B3 from Caa1, stable
outlook
-FC deposit ratings: Upgraded to Caa1 from Caa2, stable
outlook
-ADJ BCA upgraded to caa1 from caa2
-BCA upgraded to caa1 from caa2
-Short-term Not Prime ratings are affirmed
+++++++++++++++++++++++++++++++++++
Banque du Caire SAE
-LC deposit ratings: Upgraded to B3 from Caa1, stable
outlook
-FC deposit ratings: Upgraded to Caa1 from Caa2, stable
outlook
-ADJ BCA upgraded to caa1 from caa2
-BCA upgraded to caa1 from caa2
-Short-term Not Prime ratings are affirmed
+++++++++++++++++++++++++++++++++++
Commercial International Bank (Egypt) SAE
-LC deposit ratings: Upgraded to B3 from Caa1, stable
outlook
-FC deposit ratings: Upgraded to Caa1 from Caa2, stable
outlook
-ADJ BCA upgraded to b3 from caa1
-BCA upgraded to b3 from caa1
-Short-term Not Prime ratings are affirmed
+++++++++++++++++++++++++++++++++++
Bank of Alexandria SAE
-LC deposit ratings: Upgraded to B2 from B3, stable
outlook
-FC deposit ratings: Upgraded to Caa1 from Caa2, stable
outlook
-ADJ BCA upgraded to b2 from b3
-BCA upgraded to b3 from caa1
-Short-term Not Prime ratings are affirmed
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
March 2015. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
The ratings of rated entity Bank of Alexandria SAE were initiated by Moody's
and were not requested by these rated entities.
Rated entity Bank of Alexandria SAE or its agent(s) participated in the
rating process. This rated entity or its agent(s), if any,
provided Moody's - access to the books, records and
other relevant internal documents of the rated entity/ies.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
Analyst
Financial Institutions Group
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
Sean Marion
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 upgrades Egyptian bank's ratings; outlook remains stable
