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Moody’s has upgraded the long-term deposit ratings outlook of five local banks to positive from negative, the credit rating agency wrote on Tuesday.
Like clockwork: The agency upgraded Egypt’s outlook to positive from negative affirming its Caa1 rating on Thursday, citing the USD 35 bn Ras El Hekma investment and recent policy measures taken by the Central Bank of Egypt (CBE) which helped the country access a bigger USD 8 bn package from the International Monetary Fund.
The banks five are: State-owned lenders National Bank of Egypt, Banque Misr, and Banque du Caire, as well as the country’s largest private sector bank CIB — Moody’s affirmed their Caa1 long-term deposit rating. The banks also include Bank of Alexandria — Moody’s affirmed its B3 rating.
Remember: The five banks had their credit ratings slashed in October after the rating agency cut our sovereign credit rating a week prior. Moody’s then downgraded its long-term deposit rating outlook of the banks to negative from stable in January.
The why: The fresh FX injection and policy measures will positively impact the wider banking sector given the five banks’ “high sovereign exposure, mainly in the form of government debt securities, that link their credit profile to that of the government,” Moody’s said.
Tread carefully: Egypt’s banking sector’s large net foreign liabilities position, recent currency float, and high interest rate “could exert renewed pressure on bank’s capital, asset quality and profitability metrics,” Moody’s added. Meanwhile, the high sovereign exposure of the five banks presents a solvency risk given the government’s high debt ratio and weak debt affordability.
Also posing hurdles: Moody’s points to foreign liquidity pressures, the EGP weakening, profitability pressures, and reduced capital metrics as reasons for downgrading the bank’s ratings.
Driving a future upgrade: “A ratings upgrade would require a material strengthening of the operating environment and in the government’s credit profile, and provided that the banks maintain their resilient financial performance and adequate foreign currency liquidity,” Moody’s wrote.
Looking ahead: The recent wave of reforms will result in a renewed flow of remittances via official channels in addition to more foreign investments and portfolio flows, Moody’s thinks.
