Moody's Investors Service has upgraded to B3 from Caa1 the local-currency (LC) deposit ratings of National Bank of Egypt, Banque Misr, Banque Du Caire and Commercial International Bank (Egypt), as well as the LC deposit ratings of Bank of Alexandria to B2 from B3. The standalone ratings of all five banks were also upgraded by one notch.
The rating agency said the upgrades follow the improved operating environment in Egypt, which will benefit the banks' business prospects and asset quality; the improved quality of the banks' liquidity buffers; and 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, 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.
Moody's expects Egypt's improving macroeconomic performance and easing external vulnerabilities will support increased lending opportunities and sees 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.
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.
