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Fitch Ratings has downgraded the long-term deposit ratings of four Egyptian banks following its lowering of the country’s sovereign rating earlier this month. The National Bank of Egypt (NBE), Banque Misr, Banque du Caire, and CIB all saw their ratings drop from B+ to B “reflecting the sovereign's weaker ability to provide support, particularly in foreign currency,” the rating agency saidyesterday. Fitch kept its outlook for the banks unchanged at negative.
Why?
#1- The banks hold a lot of government debt: Fitch says the four banks have “significant exposure” to debt owed by the government and public-sector companies, which it estimates to be around 75% of their total assets.
#2- Liquidity conditions aren’t great: Egypt’s banking sector is currently sitting on record net foreign liabilities, recording USD 14 bn as of the end of March as banks struggle to secure foreign currency.
#3- More EGP pressure: Fitch expects pressure on the banks’ capital ratios to rise due to further EGP depreciation and market-to-market losses.”The latter losses are partly mitigated by banks typically holding securities to maturity,” the agency said.
REMEMBER- Fitch recently downgraded Egypt’s sovereign credit rating for the first time since 2013, lowering it to B from B+ on the back of “high external financing requirements, constrained external financing conditions and the sensitivity of Egypt's broader financing plan to investor sentiment.” The agency maintained its negative outlook.
Moody’s + S&P did it first:Earlier this year, Moody’s downgraded the long-term deposit ratings of five Egyptian banks after it downgraded the country’s sovereign credit rating, while S&P Global Ratings had cut its outlookon the NBE, Banque Misr, and CIB to negative shortly after doing the same to Egypt’s debt outlook.
Moody’s rating could soon get worse: The rating agency said in a note yesterday that it has placed the five Egyptian banks on review for downgrade, a week after doing the same to Egypt’s sovereign rating. Moody’s currently rates NBE, Banque Misr, Banque du Caire, and CIB at B3 and Alexbank at B2. Moody’s will look into how the government’s weaker credit rating will affect the country’s banks, as well as their FX liquidity, it said.
