Fitch Ratings has downgraded National Bank of Egypt’s (NBE), its wholly-owned subsidiary, National Bank of Egypt (UK) Ltd’s (NBEUK), and Commercial International Bank’s (CIB) (COMI.CA) Long-term foreign currency Issuer Default Ratings (IDR) to ‘B-‘ from ‘B’. The Outlooks are Negative.
Credit Agricole Egypt’s (CAE) Support Rating has been affirmed at ‘4’. A full list of rating actions is at the end of this release.
The downgrade and Negative Outlook on NBE, NBEUK and CIB reflect the rating action taken on the Arab Republic of Egypt’s ratings (see ‘Fitch Downgrades Egypt to ‘B-‘; Outlook Negative’ dated 5 July 2013 at fitchratings.com.
The Support Ratings have been downgraded to ‘5’ to reflect the reduced ability of the Egyptian authorities to provide support. The banks’ Support Rating Floors have been revised to ‘B-‘.
Fitch has also downgraded NBE and CIB’s Viability Ratings (VRs) based on the likely impact of the heightened political uncertainty on the operating environment in Egypt and hence on the banks’ performance and asset quality.
KEY RATING DRIVERS – IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS
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. 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.
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.
CIB’s Long-term IDR is driven by its VR but 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.
Credit Agricole Egypt’s (CAE) Support Rating reflects Fitch’s belief that Credit Agricole (‘A+’/Negative) would be willing to support its Egyptian subsidiary, although this support is to some extent constrained by the Egyptian sovereign ratings. CAE is about 60% owned by Credit Agricole and is part of Credit Agricole’s presence and strategy in the Middle East and North Africa region.
RATING SENSITIVITIES – IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS
The ratings are sensitive to the Egyptian sovereign ratings, and any changes would reflect a change in the sovereign ratings.
CAE’s Support Rating is also sensitive to any change in Credit Agricole’s propensity or ability to provide support.
KEY RATING DRIVERS – NATIONAL RATINGS
NBE, CIB and CAE’s National Ratings have been affirmed, as Fitch considers that their relative creditworthiness has not changed despite the sovereign downgrade.
RATING SENSITIVITIES – NATIONAL RATINGS
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. The Outlooks on the National Ratings are Stable, reflecting Fitch’s expectation that the relative ranking of the three banks will remain stable even if the operating environment continues to deteriorate.
KEY RATING DRIVERS – VIABILITY RATING
NBE’s VR reflects the close ties between its creditworthiness and that of the Egyptian sovereign, including through substantial holding of government debt.
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 NBEUK’s strategy increasingly capitalises on NBE’s franchise, Fitch has not assigned a VR to NBEUK.
CIB’s VR reflects the strength of the bank’s local franchise and experienced management, its consistently strong profitability, sound asset quality and liquidity. The VR remains above its foreign currency IDR as Fitch considers that, despite the worsening conditions in the domestic market, CIB’s intrinsic creditworthiness remains among the strongest in the sector. Nevertheless, its VR is effectively capped by its high exposure to the domestic economic environment and significant holdings of Egyptian sovereign debt.
RATING SENSITIVITIES – VIABILITY RATING (VR)
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 affirmed ‘AA-(egy)’; Outlook Stable
National Short-term Rating affirmed at ‘F1+(egy)’
Viability Rating downgraded to ‘b-‘ from ‘b’
Support Rating downgraded to ‘5’ from ‘4’
Support Rating Floor revised to ‘B-‘ from ‘B’
Senior unsecured debt downgraded to ‘B-‘ from ‘B’
NBEUK
Long-term IDR downgraded to ‘B-‘ from ‘B’; Outlook Negative
Short-term IDR affirmed at ‘B’
Support Rating downgraded to ‘5’ from ‘4’
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 downgraded to ‘b’ from ‘b+’
Support Rating downgraded to ‘5’ from ‘4’
Support Rating Floor revised to ‘B-‘ from ‘B’
CAE
National Long-term Rating affirmed at ‘AA+(egy)’; Outlook Stable
National Short-term Rating affirmed at ‘F1+(egy)’
Support Rating affirmed at ‘4’
Source: Fitch Ratings
