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Rating Action:

Moody's upgrades five Egyptian banks; outlook changed to stable

23 Apr 2019

Limassol, April 23, 2019 -- Moody's Investors Service ("Moody's") has today upgraded the long-term local-currency deposit ratings of National Bank of Egypt SAE ("NBE"), Banque Misr SAE ("BM"), Banque Du Caire SAE ("BdC") and Commercial International Bank (Egypt) SAE ("CIB") to B2 from B3, and their long-term foreign currency deposit ratings to B3 from Caa1. The rating agency has also upgraded Bank of Alexandria SAE's ("Alex Bank") long-term local currency deposit rating to B1 from B2, and its long-term foreign currency deposit rating to B3 from Caa1. Local currency deposit rating outlooks were changed to stable from positive. At the same time, Moody's upgraded the baseline credit assessments (BCAs) of all five banks to b2 from b3. A full list of affected ratings is provided at the end of this press release.

The rating actions follow Moody's upgrade of the Egyptian government's issuer rating to B2 stable from B3 positive (please see "Moody's upgrades Egypt's ratings to B2, stable outlook", http://www.moodys.com/viewresearchdoc.aspx?docid=PR_398635, 17 April 2019), and reflect the improved economic outlook and stronger growth potential, which supports banks' financial performance and also led Moody's to change Egypt's Macro Profile to "Weak-" from "Very Weak+".

RATING RATIONALE

Today's rating actions follow the rating agency's decision to upgrade Egypt's government ratings to B2 with a stable outlook from B3 positive. Consequently, Moody's has also changed Egypt's Macro Profile to "Weak-" from "Very Weak+" to reflect the more favourable operating conditions for banks.

By changing Egypt's Macro Profile to Weak-, the rating agency recognizes the improving operating conditions for banks owing to the continued economic recovery, improved business environment and implementation of structural reforms. Funding conditions, specifically with regards to foreign currency, have also normalised following the foreign exchange rate liberalization. The Macro Profile is, however, also underpinned by the country's high unemployment and low income levels, as well as the challenging credit conditions. The latter relate to gaps in the legal framework for secured lending, high borrower concentrations and the significant increase in higher-risk loans to small and medium enterprises (SMEs).

Moody's assessment of a more favourable operating environment for banks, in combination with ongoing improvements in their financial performance, has resulted in rating upgrades by one notch for all five rated Egyptian banks.

The rating agency also notes the government's strengthened capacity to support banks in case of need. However, this has not resulted in any rating upgrades, as the banks' BCAs are already at the same level as the government rating. Similarly, all foreign currency deposit ratings are constrained by the relevant country ceiling (B3), capturing foreign currency transfer and convertibility risks.

BANK-SPECIFIC CONSIDERATIONS

--- National Bank of Egypt SAE

NBE's ratings are supported by (1) the bank's dominant franchise as the largest bank in Egypt and its stable deposit based funding structure; (2) its good liquidity buffers, with the loans-to-deposits ratio at 42% as of June 2018; and (3) its resilient profitability, with a return on tangible assets of 0.7%. The bank's non-performing loans (NPLs, defined as impaired loans plus other loans outstanding more than 90 days) have followed a declining trend in recent years and stand at 5.4% of gross loans as of June 2018.

The rating agency also notes however, that NBE's ratings are constrained by its high exposure to the Egyptian government -- estimated at 30% of total assets -- and which links the bank's credit profile to that of the government; and by its modest capital buffers, with shareholders' equity-to-total assets of 6.0% as of June 2018. In the current tightening global financial conditions, Moody's also expects the bank to face tighter foreign currency funding and liquidity conditions.

--- Banque Misr SAE

BM's ratings are supported by (1) the bank's strong franchise as the country's second-largest bank and its stable deposit based funding structure; (2) its good liquidity buffers, with the loans-to-deposits ratio at 33% as of June 2018; and (3) Moody's expectations that profitability will recover from the 0.5% return on tangible assets reported for the year-end June 2018.

The rating agency also notes however, that BM's ratings are constrained by its high exposure to the Egyptian government -- estimated at 28% of total assets -- and which links the bank's credit profile to that of the government; and by its modest capital buffers, with shareholders' equity-to-total assets of 7.4% as of June 2018. In the current tightening global financial conditions, Moody's also expects the bank to face tighter foreign currency funding and liquidity conditions.

--- Banque du Caire SAE

BdC's ratings are supported by (1) the bank's stable deposit based funding structure, with customer deposits accounting for 79% of total assets as of December 2018; (2) its solid core liquidity buffers, with cash and interbank balances accounting for 35% of total assets; (3) its strong profitability metrics with a 2018 return on tangible assets of 1.5%; and (4) moderate NPL ratio of 4.7% of gross loans.

The rating agency also notes however, that BdC's ratings are constrained by its high exposure to the Egyptian government -- estimated at 25% of total assets -- and which links the bank's credit profile to that of the government, and by its modest capital buffers, with shareholders' equity-to-total assets of 6.4% as of December 2018.

--- Commercial International Bank (Egypt) SAE

CIB's ratings are supported by its strong risk management culture and solid financial fundamental that include an NPL ratio of 4.1% of gross loans as of December 2018, a shareholders' equity-to-total assets ratio of 10.0%, a return on tangible assets of 2.8%, and a resilient deposit-based funding structure and high liquidity buffers.

CIB's ratings are effectively constrained by the government rating, given the bank's high exposure (at around 45% of its total assets) to the Egyptian government.

--- Bank of Alexandria SAE

Alex Bank's ratings are supported by its solid financial performance that include a shareholders' equity-to-total assets ratio of 11.0% as of December 2018, a return on tangible assets of 3.2%, and a resilient deposit-based funding structure -- with deposits accounting for 83% of total assets -- and high liquidity buffers. The bank's ratings also benefit from one notch of uplift from its b2 BCA, reflecting Moody's assessment of a moderate probability of support in case of need, from Intesa Sanpaolo, the bank's 70.25% major shareholder.

Alex Bank's BCA is constrained by the government rating, given the bank's high exposure (at around 22% of its total assets as of December 2018) to the Egyptian government, while its NPL ratio stood at around 5.8%.

WHAT COULD CHANGE THE RATINGS UP / DOWN

The outlook on the five banks' long-term local currency deposit ratings is stable, aligned with the stable outlook on the sovereign rating of the government of Egypt.

Moody's could upgrade the banks' ratings in the event of a further strengthening of the operating conditions, provided this also leads to an upgrade of Egypt's ratings.

Any renewed weaknesses in the operating environment and in the sovereign's credit risk profile could place negative pressure on the banks' ratings. In addition, banks-specific issues -- such as the increase in NPLs accompanied by pressures on the capital metrics or renewed foreign currency funding and liquidity pressures, especially at the state-owned banks -- could also place pressure on the banks' BCAs.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Issuer: National Bank of Egypt SAE

..Upgrades:

.... Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

.... Baseline Credit Assessment, Upgraded to b2 from b3

.... Long-term Counterparty Risk Assessment, Upgraded to B1(cr) from B2(cr)

.... Long-term Counterparty Risk Rating, Upgraded to B1 from B2

.... Long-term Bank Deposits (Local Currency), Upgraded to B2 from B3, Outlook Changed To Stable From Positive

.... Long-term Bank Deposits (Foreign Currency), Upgraded to B3 from Caa1

..Affirmations:

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Short-term Counterparty Risk Rating, Affirmed NP

.... Short-term Bank Deposits, Affirmed NP

..Outlook Action:

....Outlook Changed To Stable From Positive

Issuer: Banque Misr SAE

..Upgrades:

.... Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

.... Baseline Credit Assessment, Upgraded to b2 from b3

.... Long-term Counterparty Risk Assessment, Upgraded to B1(cr) from B2(cr)

.... Long-term Counterparty Risk Rating, Upgraded to B1 from B2

.... Long-term Bank Deposits (Local Currency), Upgraded to B2 from B3, Outlook Changed To Stable From Positive

.... Long-term Bank Deposits (Foreign Currency), Upgraded to B3 from Caa1

..Affirmations:

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Short-term Counterparty Risk Rating, Affirmed NP

.... Short-term Bank Deposits, Affirmed NP

..Outlook Action:

....Outlook Changed To Stable From Positive

Issuer: Banque du Caire SAE

..Upgrades:

.... Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

.... Baseline Credit Assessment, Upgraded to b2 from b3

.... Long-term Counterparty Risk Assessment, Upgraded to B1(cr) from B2(cr)

.... Long-term Counterparty Risk Rating, Upgraded to B1 from B2

.... Long-term Bank Deposits (Local Currency), Upgraded to B2 from B3, Outlook Changed To Stable From Positive

.... Long-term Bank Deposits (Foreign Currency), Upgraded to B3 from Caa1

..Affirmations:

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Short-term Counterparty Risk Rating, Affirmed NP

.... Short-term Bank Deposits, Affirmed NP

..Outlook Action:

....Outlook Changed To Stable From Positive

Issuer: Commercial International Bank (Egypt) SAE

..Upgrades:

.... Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

.... Baseline Credit Assessment, Upgraded to b2 from b3

.... Long-term Counterparty Risk Assessment, Upgraded to B1(cr) from B2(cr)

.... Long-term Counterparty Risk Rating, Upgraded to B1 from B2

.... Long-term Bank Deposits (Local Currency), Upgraded to B2 from B3, Outlook Changed To Stable From Positive

.... Long-term Bank Deposits (Foreign Currency), Upgraded to B3 from Caa1

..Affirmations:

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Short-term Counterparty Risk Rating, Affirmed NP

.... Short-term Bank Deposits, Affirmed NP

..Outlook Action:

....Outlook Changed To Stable From Positive

Issuer: Bank of Alexandria SAE

..Upgrades:

.... Adjusted Baseline Credit Assessment, Upgraded to b1 from b2

.... Baseline Credit Assessment, Upgraded to b2 from b3

.... Long-term Counterparty Risk Assessment, Upgraded to Ba3(cr) from B1(cr)

.... Long-term Counterparty Risk Rating (Local Currency), Upgraded to Ba3 from B1

.... Long-term Counterparty Risk Rating (Foreign Currency), Upgraded to B1 from B2

.... Long-term Bank Deposits (Local Currency), Upgraded to B1 from B2, Outlook Changed To Stable From Positive

.... Long-term Bank Deposits (Foreign Currency), Upgraded to B3 from Caa1

..Affirmations:

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Short-term Counterparty Risk Rating, Affirmed NP

.... Short-term Bank Deposits, Affirmed NP

..Outlook Action:

....Outlook Changed To Stable From Positive

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.

Constantinos Kypreos
Senior Vice President
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

No Related Data.
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