On Aug. 24, 2012, Standard & Poor’s Ratings Services affirmed its ‘B/B’ long- and short-term counterparty credit ratings on National Bank of Egypt (NBE), Banque Misr (BM), and Commercial International Bank (Egypt) S.A.E. (CIB). We also removed the ratings on these banks from CreditWatch, where they had been placed with negative implications on June 26, 2012. The outlook on the three banks is negative.
Our unsolicited public information (‘pi’) ‘Bpi’ rating on National Societe Generale Bank S.A.E. (NSGB) is not affected because, typically, we do not use modifiers, outlooks, or CreditWatch placements for ‘pi’ ratings.
Rationale
The rating actions on NBE, BM, and CIB follow our affirmation of the ratings on the Republic of Egypt (B/Negative/B; see “Rating On Egypt Affirmed At ‘B’; Off Watch; Outlook Negative,” published Aug. 23, 2012, on RatingsDirect on the Global Credit Portal).
We believe that the ruling political forces, namely the MuslimBrotherhood–Egypt’s dominant political party–and the senior ranks of theEgyptian military are moving toward a working arrangement and this could lead to the authorities addressing some of Egypt’s pressing structural challenges and stemming the deterioration in government and external finances. The risk of deteriorating sovereign creditworthiness remains, in our view, but its immediacy has decreased.
Our ‘B’ long-term ratings on NBE and CIB are capped at the level of the sovereign rating on Egypt and factor in our opinion of the risks related to operating in Egypt. In our view, NBE, BM, and CIB face significant sovereign risk because they hold a high amount of government debt compared with their equity base and earnings capacity. We assess the stand-alone credit profiles (SACPs) for BM, NBE, and CIB respectively at ‘b’, ‘b+’, and ‘bb-‘. Our ratings on NBE and CIB do not exceed those on the sovereign because we donot believe that the banks would withstand a scenario where Egypt defaulted on its obligations.
We consider NBE and BM to be government-related entities under our methodology, given their 100% ownership by the Egyptian government. We factor in no uplift because NBE and BM’s SACPs are respectively higher than and equal to the long-term rating on the sovereign.
Outlook
The negative outlook on NBE, BM, and CIB mirrors the negative outlook on Egypt. It also factors in our view that a prolonged deterioration in the banks’ operating environment could have a negative impact on their SACPs.
We would lower our ratings on NBE, BM, and CIB if we were to lower our ratings on the sovereign. A lowering of the sovereign rating will have a direct negative impact on NBE, BM, and CIB because the ratings on the banks are constrained at the level of the rating on the sovereign. This could also have a negative impact on our economic risk or industry risk scores for Egypt under our Banking Industry Country Risk Assessment (BICRA) methodology. A downward revision of these scores, whether linked to a deterioration of the creditworthiness of Egypt or not, could lead us to revise downward our anchor for banks operating in Egypt.
We would revise the outlooks on the banks to stable if we were to change the outlook on the sovereign to stable while maintaining our assessments of the banks’ SACPs at their current levels.
