Moody’s takes ac­tions on Egyp­tian banks

The Pak Banker - - Front Page -

LI­MAS­SOL

Global rat­ing agency Moody’s has to­day taken ac­tions on five Egyp­tian banks: Na­tional Bank of Egypt SAE, Banque Misr SAE and Banque Du Caire SAE: Moody’s has low­ered these three gov­ern­ment-owned banks’ stand­alone credit as­sess­ments to b3 from b2 and con­firmed their long-term lo­cal-cur­rency de­posit rat­ings at B2, with a neg­a­tive out­look. Com­mer­cial In­ter­na­tional Bank (Egypt) SAE: Moody’s has low­ered the bank’s stand­alone credit as­sess­ment to b2 from b1, and down­graded the long-term lo­cal­cur­rency de­posit rat­ing to B2, with a neg­a­tive out­look, from B1.

Bank of Alexan­dria SAE: Moody’s has con­firmed all the bank’s rat­ings, in­clud­ing its b2 stand­alone credit as­sess­ment and Ba3 lo­cal-cur­rency de­posit rat­ing, with a neg­a­tive out­look.

The rat­ing ac­tions re­flect the banks’ high exposures to B2-rated Egyp­tian gov­ern­ment se­cu­ri­ties and the weak cap­i­tal buf­fers of gov­ern­ment-owned banks in the con­text of the chal­leng­ing do­mes­tic oper­at­ing en­vi­ron­ment. The rat­ing ac­tions con­clude the re­view of these rat­ings that Moody’s ini­ti­ated on 22 De­cem­ber 2011, and sub­se­quently ex­tended in April 2012. To­day’s ac­tions also fol­low the con­clu­sion on 12 Septem­ber 2012 of the re­view of Egypt’s gov­ern­ment bond rat­ings.

To­day’s rat­ing ac­tions on the three gov­ern­ment-owned banks, Na­tional Bank of Egypt, Banque Misr and Banque Du Caire, re­flect Moody’s view of their rel­a­tively weak cap­i­tal buf­fers and very high lev­els of sov­er­eign debt exposures, which weigh on their stand­alone pro­files; coun­ter­bal­anced against the very high like­li­hood of sys­temic (gov­ern­ment) sup­port, which prompted Moody’s to con­firm the de­posit rat­ings at the same level as Egypt’s B2-rated gov­ern­ment bonds.

The low­er­ing of the banks’ stand­alone credit as­sess­ments is driven by their rel­a­tively weak cap­i­tal buf­fers in the con­text of Egypt’s cur­rently chal­leng­ing oper­at­ing en­vi­ron­ment. Given Moody’s ex­pec­ta­tion of fur­ther as­set qual­ity pres­sure, the rat­ing agency views the banks’ loss ab­sorp­tion ca­pac­ity, with Tier 1 ra­tios rang­ing be­tween 8.3%-11.1% ac­cord­ing to lat­est fi­nan­cial state­ments, as com­men­su­rate with a b3 stand­alone credit as­sess- ment.

More­over, Moody’s also notes that the three banks’ cap­i­tal buf­fers are thin rel­a­tive to their very high, and in­creas­ing, exposures to gov­ern­ment se­cu­ri­ties (rang­ing from 500%-700% of Tier 1, ac­cord­ing to the banks’ lat­est fi­nan­cial state­ments). The very high con­cen­tra­tion of gov­ern­ment se­cu­ri­ties also height­ens the banks’ sus­cep­ti­bil­ity to sov­er­eign-re­lated event risk. The con­fir­ma­tion at B2 of the de­posit rat­ings of the three gov­ern­ment-owned banks, in­line with the gov­ern­ment’s rat­ing, re­flects Moody’s in­cor­po­ra­tion of one notch of up­lift from the banks’ stand­alone credit as­sess­ments. This re­flects Moody’s as­sump­tion of a very high like­li­hood of sys­temic sup­port from the Egyp­tian au­thor­i­ties and takes into ac­count (1) the banks’ 100% gov­ern- ment own­er­ship; (2) their sys­temic im­por­tance; and (3) siz­able de­posit mar­ket shares (rang­ing from 23% for Na­tional Bank of Egypt to 4% for Banque Du Caire).

The align­ment of Com­mer­cial In­ter­na­tional Bank’s (CIB) rat­ings with the B2 gov­ern­ment bond rat­ing re­flects the cor­re­la­tion of the bank’s stand­alone credit pro­file with that of Egypt, ow­ing to the bank’s in­creas­ing ex­po­sure to gov­ern­ment se­cu­ri­ties. Over 2012, CIB has in­creased its ex­po­sure to Egyp­tian gov­ern­ment se­cu­ri­ties to 191% of Tier 1 cap­i­tal, from 103% in June 2011. Ac­cord­ingly, this high ex­po­sure links the bank’s stand­alone credit strength to the sov­er­eign’s B2 cred­it­wor­thi­ness and height­ens its sus­cep­ti­bil­ity to sov­er­eign re­lated event risk.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.