Moody’s has downgraded the long-term bank deposit ratings of five Egyptian banks by one notch a week after the rating company lowered the North African country’s sovereign rating by one notch citing its reduced external buffers and shock absorption capacity.
“Moody’s has today downgraded the long-term bank deposit ratings of five Egyptian banks by one notch: National Bank of Egypt, Banque Misr, Banque Du Caire and Commercial International Bank to B3 from B2 and Bank of Alexandria to B2 from B1,” the rating agency said in a statement last Thursday.
The downgrades reflect the weakening operating environment, as captured by Moody’s lowering of its macro profile for Egypt to “very weak+” from “weak-“and the high interlinkages between the sovereign’s weakened creditworthiness and the banks’ balance sheets.
Last week, the rating agency downgraded Egypt further into junk bond or non-investment grade territory and changed the country’s outlook to stable from negative. Moody’s also assigned stable outlooks assigned to all the banks in line with the stable outlook on Egypt’s government rating.
“The stable outlook further reflects banks’ stable local currency funding and liquidity position and good earnings-generating capacity that partly mitigates risks stemming from the tight foreign currency liquidity conditions and high asset risks,” Moody’s said.
Egypt continues to face a foreign currency shortage despite allowing the pound to depreciate sharply in recent months. Even with the country’s new International Monetary Fund program, Moody’s warns that it will take time to tangibly reduce the country’s vulnerability to external risks such as higher borrowing costs and inflationary pressures.
