Moody’s takes actions on Egyptian banks
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.