Fitch Ratings has downgraded Egypt-based National Bank of Egypt (NBE), its wholly-owned subsidiary, National Bank of Egypt (UK) Ltd (NBEUK), and Egypt-based Commercial International Bank’s (CIB) Long-term foreign currency Issuer Default Ratings (IDR) to ‘B+’ from ‘BB-‘. The Outlook remains Negative. A full list of rating actions is at the end of this release.
The downgrades and the Negative Outlook reflect the rating action taken on the Arab Republic of Egypt’s ratings (Long-term foreign currency IDR to ‘B+/Negative’ from ‘BB-/Negative’, Long-term local currency IDR to ‘B+/Negative’ from ‘BB/Negative’ and Country Ceiling to ‘B+’ from ‘BB-‘.
The sovereign downgrade and Negative Outlook reflect increased uncertainties surrounding the political transition following the ruling by the Supreme Constitutional Court to annul parliamentary elections and dissolve parliament. The need to re-run parliamentary elections will, at the very least, delay the emergence of a workable and inclusive governance structure. Such political uncertainty could weaken confidence and heighten near-term economic and financial pressures facing Egypt. Nor is it conducive to the taking of critical macroeconomic and structural policy decisions required to catalyze Egypt’s economic recovery, alleviate budget and external financing strains and return the public finances to a sustainable path.
Fitch has also downgraded the banks’ 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. The banks’ National Ratings were affirmed, as were the National Ratings of Credit Agricole Egypt and Suez Canal Bank. The National Ratings remain on Negative Outlook, reflecting the likelihood of deterioration in profitability or asset quality due to stresses in the operating environment, which may adversely affect the banks to a differing extent.
The IDRs, Support Ratings and Support Rating Floors are sensitive to Fitch’s view of Egypt’s creditworthiness as these ratings are either driven by or constrained by the sovereign.
The rating actions are as follows:
NBE
Long-term IDR downgraded to ‘B+’ from ‘BB-‘; Negative Outlook
Short-term IDR affirmed at ‘B’
National Long-term Rating affirmed at ‘AA(egy)’; Negative Outlook
National Short-term Rating affirmed at ‘F1+(egy)’
Viability Rating downgraded to ‘b+’ from ‘bb-‘
Support Rating downgraded to ‘4’ from ‘3’
Support Rating Floor revised to ‘B+’ from ‘BB-‘
Senior unsecured debt downgraded to ‘B+’ from ‘BB-‘
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. Fitch believes that although the authorities would have a very strong propensity to support the bank, such support is constrained by their weakening ability to support it, as reflected in the sovereign IDR of to ‘B+’.
NBEUK
Long-term IDR downgraded to ‘B+’ from ‘BB-‘; Negative Outlook
Short-term IDR affirmed at ‘B’
Support Rating downgraded to ‘4’ from ‘3’
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 capitalizes on NBE’s franchise, Fitch has not assigned a Viability Rating to NBE UK.
CIB
Long-term IDR downgraded to ‘B+’ from ‘BB-‘; Negative Outlook
Short-term IDR affirmed at ‘B’
National Long-term Rating affirmed at ‘AA(egy)’; Negative Outlook
National Short-term Rating affirmed at ‘F1+(egy)’
Viability Rating downgraded to ‘b+’ from ‘bb’
Support Rating affirmed at ‘4’
Support Rating Floor revised to ‘B’ from ‘B+’
CIB’s IDRs reflect the strength of the bank’s local franchise and management, its consistently strong profitability and adequate risk management. 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 Egypt’s.
Credit Agricole Egypt (CAE)
National Long-term Rating affirmed at ‘AA+(egy)’; Negative Outlook
National Short-term Rating affirmed at ‘F1+(egy)’
Support Rating downgraded to ‘4’ from ‘3’
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 such support is constrained by the country ceiling of ‘B+’.
Suez Canal Bank (SCB)
National Long-term Rating affirmed at ‘BBB(egy)’; Negative Outlook
National Short-term Rating affirmed at ‘F3(egy)’
Support Rating affirmed at ‘4’
SCB is a mid-sized domestic bank. Its National Ratings are solely based on the likelihood of support from the Egyptian authorities.
National Societe Generale Bank (NSGB)
Support Rating downgraded to ‘4’ from ‘3’
NSGB is one of Egypt’s largest private-sector banks. The bank’s Support Rating reflects the probability of support from its majority shareholder, Societe Generale (SG; ‘A+’/Negative). Fitch believes that Societe Generale would be willing to support its Egyptian subsidiary, but such support is constrained by the country ceiling of ‘B+’.
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