Moody's Investors Service has downgraded the ratings of five Egyptian banks - National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank and Bank of Alexandria.

The ratings on the five banks remain under review for possible further downgrade.

Today's lowering of the banks' ratings is prompted by Moody's reassessment of the country's capacity to support its banking system,following the rating agency's decision on Monday to lower the sovereign rating of Egypt to Ba2 (negative outlook) from Ba1 (stable outlook).

This reassessment has a negative impact on the supported bank deposit ratings. The review for potential further downgrade reflects concerns that the current political and social unrest will negatively impact the economy and, ultimately, the financial health of the banks.

'Today's downgrade of Egyptian banks' local currency (LC) deposit ratings is mainly driven by our reassessment of the country's capacity to support its banking system, following the lowering of the government's ratings,' a statement said.

Under Moody's methodology, a government's credit strength serves as a key input in assigning the country's systemic support indicator (SSI). The latter measures the capacity of a country to support its banking system which, in turn, can provide uplift to the deposit and debt ratings of a bank.

As a result of the sovereign downgrade and greater uncertainty in the country's capacity to orchestrate and finance systemic support for its banking system, Egypt's SSI has been lowered to Ba1 from Baa2, which is one notch above the new government rating (Ba2).
This repositioning of the SSI has caused the bank deposit and debt rating downgrades announced today.

Egyptian banks' standalone bank financial strength ratings (BFSRs) and LC deposit ratings have been placed under review for possible further downgrade to assess the potential impact of political and social instability on the banks' finances given the likely corresponding deterioration in the country's economic conditions.

Moody's is concerned that, if not resolved quickly, the current period of political uncertainty could negatively impact foreign direct investment flows into the country and disrupt economic activity, thereby weakening the performance of the main economic sectors such as tourism, exports, textiles and real estate/construction.

Moody's notes that the performance of the banks' credit portfolios, which are essentially domestic and concentrated, would likely deteriorate in a weakening macroeconomic environment. Moreover, asset quality deterioration would force banks to raise loan loss provisioning, thereby further weighing on their economic capital position and damaging their profitability.

Moody's review will also assess the possible impact of changes in the political landscape on the business franchise of banks with significant government-related lending, as well as any possible deposit flows outside the banking system.

With reference to Commercial International Bank (CIB), whose BFSR is downgraded to D+, Moody's said that, notwithstanding CIB's relatively strong financial fundamentals, the bank's intrinsic financial health has weakened as a result of the potential impact of political instability on the country's economic conditions and the consequences for the bank's financial position given its large government securities portfolio (comprising around 12 per cent of its total assets).

Bank ratings affected by today's downgrade

- National Bank of Egypt: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. The bank's senior unsecured FC debt, issued through its Nile Finance Ltd special purpose
vehicle registered in the Cayman Islands, is also downgraded by two notches to Ba1 from Baa2. All ratings, including its bank financial strength rating (BFSR) of D, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Banque Misr: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. All ratings, including its bank financial strength rating (BFSR) of D-, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Banque du Caire: Local currency (LC) deposit ratings are downgraded by one notch to Ba1/NP from Baa3/P-3 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. All ratings, including its bank financial strength rating (BFSR) of D-, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Commercial International Bank: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. The bank's financial strength rating (BFSR) is downgraded to D+ from C-. All ratings, including its bank financial strength rating (BFSR) of D+, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.

- Bank of Alexandria: Local currency (LC) deposit ratings are downgraded by two notches to Ba1/NP from Baa2/P-2 and its long-term foreign currency (FC) deposit rating by one notch to Ba3 from Ba2, constrained by the respective sovereign ceiling. All ratings, including its bank financial strength rating (BFSR) of D, are placed on review for further possible downgrade, except the FC deposit rating which has a negative outlook.-TradeArabia News Service