Fitch Ratings has revised the outlook on National Bank of Egypt (NBE), Banque Misr (BM), Banque du Caire (BDC) and Commercial International Bank’s(CIB) Long-Term Issuer Default Ratings (IDRs) to “positive” from “stable” and affirmed the IDRs at ‘B-‘.
The rating actions follows the revision of the Outlook on Egypt’s sovereign rating and reflects the strong correlation of Egyptian banks’ creditworthiness with that of the Egyptian sovereign.
The Long-Term IDRs of NBE, BM, BDC and CIB are driven by their ‘B-‘ Viability Ratings (VRs). The VRs reflect the strong correlation between the banks’ credit profiles and that of the sovereign, given their significant direct exposure to the sovereign through sizeable holdings of Egyptian government debt and lending to public sector companies.
“For the banking sector as a whole, total exposure to the sovereign and the broader public sector at end-2023 was 53% of total assets or around 8.3x banks’ equity,” Fitch Ratings said in a report, a copy of which was obtained by The Egyptian Gazette.
“In our view, the recent large investment from the UAE and support packages from International Monetary Fund (IMF), greater foreign-exchange (FX) rate flexibility and the significant improvement in FC liquidity will underpin greater macro stability in 2024/25 and alongside with a stronger sovereign credit profile will be positive for banks’ business, risk and financial profiles,” it said.
Credit performance should also benefit from easing inflation, lower input costs and better FC availability with the sector’s impaired loan ratio of 3% at end-2023, expected to remain broadly stable by end-2024. Banks’ performance will remain strong in the medium term supported by high interest rates, stronger business growth and greater macroeconomic stability, according to Fitch.
“We believe the weakening of the Egyptian pound vs the US dollar by around 34% year-to-date has put pressure on banks’ regulatory capital ratios, given their sensitivity to exchange-rate movements. However, they remain above minimum regulatory requirements,” it said.
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