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Moody’s Investors Service has downgraded the long-term deposit ratings of five local banks that had been on review since May, the rating agency said in a note Tuesday.
This was expected:The downgrades follow Moody’s decision last week to cut our sovereign credit rating deeper into junk territory due to rising debt risks and the prolonged foreign-currency shortage.
Who was on the cutting block? State-owned lenders National Bank of Egypt, Banque Misrand Banque du Caire, as well as the country’s largest private-sector bank, CIB, all had their credit ratings downgraded to Caa1 from B3, seven notches into junk territory and four above default. Meanwhile, Moody’s downgraded the rating of Intesa Sanpaolo’s Bank of Alexandria rating to B3 from B2. The credit outlook for all five banks was changed from negative to stable, in line with Egypt’s sovereign credit.
All five banks (the only ones Moody’s covers in Egypt) had their baseline credit assessment, or “BCA” in Moody’s-speak, lowered to caa1, in line with the sovereign rating. The BCA reflects Moody’s view of the macro environment in which the bank operates, measures of each bank’s solvency and liquidity, and a range of qualitative factors. You can read more about Moody’s bank rating methodology here.
WHY THE DOWNGRADE-
#1- You guessed it — the FX crunch, high inflation and rising borrowing costs: The FX crisis, deteriorating fiscal conditions, and high inflation and interest rates will put “significant” pressure on earnings, asset quality and capital buffers, and “may challenge their ability to meet foreign currency liabilities,” Moody’s said.
#2- The government’s debt problem is the bank’s debt problem: All five banks have high exposure to sovereign debt in turn exposing them to the government’s risky credit profile, the rating agency said.
Deja vu:This is the second time this year that Moody’s has taken aim at Egypt and the five banks, downgrading them a notch in February for the first time in a decade following its decision to cut Egypt’s sovereign rating.
