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
