Moody's Affirms Rating of 5 Egyptian Banks, Changes Outlook to Positive

Moody's affirmed, Tuesday, the ratings of 5 Egyptian banks, including the long-term deposit rating of the National Bank of Egypt (NBE), Banque Misr, Banque du Caire, the Commercial International Bank - Egypt (CIB), and the Bank of Alexandria.

Moody's changed the outlook on banks' long-term deposit ratings from negative to positive.

The rating come in the wake of Moody's decision to confirm Egypt's Caa1 rating and change its outlook to positive from negative.

The change in expectations to the positive reflects the significant contribution of foreign direct investment, by the United Arab Emirates, through the Ras Al-Hekma project and the noticeable change in economic policy with the significant reduction in the currency price and the increase in interest rates.

The outlook change to 'positive' on the long-term deposit ratings follows a similar rating action on the sovereign rating, and reflects the announced official and bilateral support and notable steps taken last week which, if maintained, will support the overall economy, and restore balance.

Moody's said in a statement that the very large contribution of foreign direct investment through Ras El Hekma greatly enhances the economy's foreign exchange reserves. While a significant depreciation in the currency price and an increase in interest rates are likely to help Egypt maintain completion of a massive IMF programme, reduce the risks of renewed accumulation of external imbalances and enhance the economy’s ability to withstand shocks over time.

The agency notes that these developments will also have a positive impact on the banking sector, given the high government exposure of banks, especially in the form of government debt securities, which links their credit profile to that of the government. 

The rating agency estimates exposure to government securities at approximately 6.7 times the capital of the NBE, 3.5 times that of Banque Misr, 3.2 times that of Banque du Caire, and 2.4 times that of the CIB.

On March 6, the Central Bank of Egypt floated the official exchange rate, which converged to the rate in the parallel market at about 51 Egyptian pounds to the dollar, from 30.9 Egyptian pounds, and raised the interest rate by 600 basis points to 27.25%.

On the same day, the IMF confirmed the staff-level agreement with the Egyptian authorities, paving the way for an increase in the original IMF program from $3 billion to approximately $8 billion.

Moody's said, in a statement that raising interest rates by the Central Bank of Egypt brings monetary policy closer to neutral after a long period of negative real interest rates, while tightening financial policy would over time, it reduces inflation and supports debt sustainability, while enhancing the enabling environment for private sector activity.

Moody's also expects that removing currency distortions will enhance renewed remittance flows through official channels, and stimulate foreign investment and portfolio flows in the future.