Moody’s Investors Service (Moody’s) upgraded on Tuesday, the long-term local-currency deposit ratings of the National Bank of Egypt SAE (NBE), Banque Misr SAE (BM), and Banque Du Caire SAE (BdC) and the Commercial International Bank (Egypt) SAE (CIB) to B2 from B3, and their long-term foreign currency deposit ratings to B3 from Caa1.
Furthermore, the rating agency has also upgraded the 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.
According to the press statement, the rating actions follow Moody’s upgrade of the Egyptian government’s issuer rating to B2 stable from B3 positive, 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+.’
Moreover, Moody’s announced that by changing Egypt’s Macro Profile to Weak-, the rating agency recognises the improving operating conditions for banks owing to the continued economic recovery, improved business environment, and implementation of structural reforms. Funding conditions, specifically with regard to foreign currency, have also normalised following the foreign exchange rate liberalisation.
However, Moody’s believes that the Macro Profile is also underpinned by the country’s high unemployment and low-income levels, as well as the challenging credit conditions. The latter relates to gaps in the legal framework for secured lending, high borrower concentrations, and the significant increase in higher-risk loans to small and medium-sized 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 noted 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.” the agency concluded.