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Tue 1 Nov 2011 08:56 PM

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Moody's downgrades ratings at five Egyptian banks

Ratings agency cites weak economy, high exposure to gov't securities for action

Moody's downgrades ratings at five Egyptian banks
US actor and activist Sean Penn (R) walks with Egyptian actor Khaled al-Nabawi (C) as they join Egyptian protesters in Cairos Tahrir Square on September 30, 2011 during a mass rally to reclaim the revolution amid anger over the military rulers handling of the transition. (STR/AFP/Getty Images)
Moody's downgrades ratings at five Egyptian banks
Moodys Investor Services

Moody's Investors Service on Tuesday downgraded the local currency deposit ratings of five Egyptian banks amid the country's weak economic performance.

National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank (Egypt) and the Bank of Alexandria were all affected by the downgrade.

The foreign currency deposit ratings of all the banks were also downgraded, the ratings agency said, adding that the move followed its decision last week to cut Egypt's government bond ratings.

All of the banks' deposit ratings carry a negative outlook, Moody's added.

It said the main factors driving the latest rating actions included the banks' high exposures to Egyptian government securities and related instruments, and the weakening macroeconomic environment.

Moody's also cited Egypt's reduced capacity to provide systemic support in case of need, implying that none of the rated banks would benefit from systemic support uplift.

Egypt's GDP contracted by 4.2 percent in Q1, foreign direct investment (FDI) shrank dramatically in H1 2011 and tourist arrivals fell by 42 percent in the March-June period as the country struggles to recover from the impact of the uprisings earlier in the year.

"We expect a deterioration of Egyptian banks' asset quality and profitability through higher provisioning costs and lower revenues due to weaker loan generation volumes," Moody's added.

"We expect that the full extent of asset-quality issues will begin to emerge in the next few quarters, impacting bank profitability," it said.

Moody's said it maintains the negative outlook assigned to Egyptian banks' ratings to reflect the considerable downside risks facing the operating environment.

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