By Andy Sambidge
Ratings agency cites weak economy, high exposure to gov't securities for action
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.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.