Fitch Ratings has downgraded the Long-term foreign currency Issuer Default Ratings (IDR) of National Bank of Egypt (NBE), its wholly-owned subsidiary, National Bank of Egypt (UK) Ltd (NBEUK), and Commercial International Bank (CIB) (COMI), to ‘B’ from ‘B+’. The Outlooks are Negative. A full list of rating actions is at the end of this release.
Rating Drivers And Sensitivities – IDRs, Support Ratings And Support Rating Floors
The downgrades of NBE, NBEUK and CIB’s IDRs and Negative Outlook reflect the rating action taken on the Arab Republic of Egypt’s ratings.
The Support Ratings of ‘4’ reflect a limited probability of support from the Egyptian authorities.
NBE’s Support Rating Floor has been revised to ‘B’. CIB’s Support Rating Floor has been affirmed at ‘B’ as Fitch considers that given the uncertainty in the market, the Egyptian authorities would have an increased propensity to support banks – especially systemically important ones such as NBE and CIB – and that therefore at this rating level it is no longer appropriate to differentiate the Support Rating Floors of these banks.
The ratings are sensitive to the ratings of the Egyptian sovereign and any changes would reflect a change in the sovereign ratings.
RATING DRIVERS AND SENSITIVITIES – NATIONAL RATINGS
CIB’s and Credit Agricole Egypt’s (CAE) National Ratings have been affirmed, as Fitch considers that their relative creditworthiness has not changed despite the sovereign downgrade. NBE’s National Long-term Rating has been downgraded to ‘AA-(egy)’, reflecting the sovereign support-driven nature of the bank’s National Ratings, and the close ties between NBE’s creditworthiness and that of the Egyptian sovereign. The Outlooks on the National Ratings are Stable, reflecting the likelihood that the relative ranking of the three banks will remain stable even if the operating environment continues to deteriorate.
The ratings are sensitive to any change in Fitch’s view of the relative ranking of the banks, which could arise as a result of their being affected to differing degrees by the continuing uncertainties in the market.
RATING DRIVERS AND SENSITIVITIES – VIABILITY RATING (VR)
Fitch has downgraded NBE’s VR to reflect the close ties between NBE’s creditworthiness and that of the Egyptian sovereign, including through the bank’s substantial holding of government debt. The agency affirmed CIB’s VR as Fitch considers that, despite the worsening conditions in the domestic market, CIB’s intrinsic creditworthiness has not materially deteriorated. Nevertheless, its VR is effectively capped by its high exposure to the domestic economic environment and significant holdings of Egyptian sovereign debt.
The banks’ VRs are sensitive to any further deterioration of the operating environment and its impact on performance, asset quality, and capitalization.
The rating actions are as follows:
NBE
Long-term IDR downgraded to ‘B’ from ‘B+’; Outlook Negative
Short-term IDR affirmed at ‘B’
National Long-term Rating downgraded to ‘AA-(egy)’; Outlook Stable
National Short-term Rating affirmed at ‘F1+(egy)’
Viability Rating downgraded to ‘b’ from ‘b+’
Support Rating affirmed at ‘4’
Support Rating Floor revised to ‘B’ from ‘B+’
Senior unsecured debt downgraded to ‘B’ from ‘B+’
NBE’s Long-term and Short-term IDRs are in line with Egypt’s Long-term foreign currency IDRs and are driven by the limited probability of support from the Egyptian authorities, if needed. Its National Ratings are also driven by the limited probability of support from the Egyptian authorities. NBE is wholly owned by the Egyptian state. It is Egypt’s largest bank by assets, with a dominant domestic franchise, especially in customer deposits, where it accounts for over a quarter of total system deposits.
NBEUK
Long-term IDR downgraded to ‘B’ from ‘B+’; Outlook Negative
Short-term IDR affirmed at ‘B’
Support Rating affirmed at ‘4’
NBEUK’s IDRs are in line with its parent’s IDRs and, in turn, Egypt’s Long-term foreign currency IDRs. They reflect Fitch’s view that there is a limited probability of support from the Egyptian state via NBE. Given that virtually all of NBE UK’s funding and its main business are dependent on its connection to the Egyptian sovereign, through NBE, and NBE UK’s strategy increasingly capitalises on NBE’s franchise, Fitch has not assigned a VR to NBE UK.
CIB
Long-term IDR downgraded to ‘B’ from ‘B+’; Outlook Negative
Short-term IDR affirmed at ‘B’
National Long-term Rating affirmed at ‘AA(egy)’; Outlook Stable
National Short-term Rating affirmed at ‘F1+(egy)’
Viability Rating affirmed at ‘b+’
Support Rating affirmed at ‘4’
Support Rating Floor affirmed at ‘B’
CIB’s VRs reflect the strength of the bank’s local franchise and experienced management, its consistently strong profitability, sound asset quality, liquidity and capitalisation. Its Long-term IDR is constrained by Egypt’s Country Ceiling of ‘B’ and, as a result, the Negative Outlook on its Long-term IDR mirrors that on Egypt. CIB is the leading private sector bank in Egypt.
CAE
National Long-term Rating affirmed at ‘AA+(egy)’; Outlook Stable
National Short-term Rating affirmed at ‘F1+(egy)’
Support Rating affirmed at ‘4’
CAE’s ratings reflect the limited probability of support that would be available from its majority shareholder, the Credit Agricole group (‘A+’/Negative). Fitch believes the Credit Agricole group would be willing to support its Egyptian subsidiary, but this support is to some extent constrained by the Egyptian sovereign ratings.
