Standard & Poor’s Ratings Services placed its ‘B’ long-term and ‘B’ short-term issuer credit ratings on National Bank of Egypt (NBE), Banque Misr (BM), and Commercial International Bank (Egypt) S.A.E. (CIB) on CreditWatch with negative implications.This rating action follows the recent placement of the ‘B’ long-term foreign and local currency sovereign ratings for the Republic of Egypt on CreditWatch with negative implications (see “Egypt ‘B’ Long-Term Ratings on Watch Negative on Political Uncertainties and Fiscal and External Pressures,” June 25, 2012).Our unsolicited public information (‘pi’) ‘Bpi’ rating on National Societe Generale Bank S.A.E. (NSGB), the fourth bank we rate in Egypt, is not currently affected because we typically do not place ‘pi’ ratings on CreditWatch.
The CreditWatch action on NBE, BM, and CIB follows a similar action on the Arab Republic of Egypt (B/Watch Neg/B). Our ‘B’ long-term ratings on the three banks are capped at the level of the sovereign ratings on Egypt and factor in our opinion of the risks related to operating in Egypt. NBE, BM, and CIB face significant sovereign risk because they hold a high amount of government debt compared with their equity bases and earnings capacities. We assess the stand-alone credit profiles (SACPs) for BM, NBE, and CIB at ‘b’, ‘b+’, and ‘bb-‘, respectively. Our ratings on NBE and CIB are below the banks’ respective SACPs and do not exceed those on the sovereign because we do not believe that the banks would withstand a scenario in which Egypt defaulted on its obligations.
We consider NBE and BM to be government-related entities (GREs) 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.
CreditWatch
The negative CreditWatch listing reflects that on the sovereign. We will therefore resolve the CreditWatch placement of the banks soon after the resolution of the CreditWatch listing for Egypt. The CreditWatch placement of the sovereign reflects our view of at least a 50% likelihood of a downgrade over the next three months. This could occur if escalating political tensions and the authorities’ ongoing ineffectiveness in addressing economic, fiscal, and external challenges further weaken key economic and external indicators while also undermining donors’ and multilateral lending institutions’ willingness to extend support. We do not expect a rating change of more than one notch on Egypt unless the political situation becomes extremely divisive.
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, either linked to a deterioration of the creditworthiness of Egypt, or not, could lead us to revise downward our anchor for banks operating in Egypt.
If we were to affirm our rating on Egypt and remove it from CreditWatch, we would very likely affirm our ratings on the banks as well.
Press Release
