Fitch downgrades 4 Egyptian banks to B, with negative outlook

Fitch Ratings has downgraded four Egyptian banks’ Long-Term Issuer Default Ratings (IDRs) to ‘B’ from ‘B+’ and Viability Ratings (VRs) to ‘b’ from ‘b+’, with a negative outlook. The four banks are the National Bank of Egypt (NBE), Banque Misr (BM), Banque Du Caire, and Commercial International Bank Egypt (CIB).

The four Egyptian banks’ rating downgrade follow a recent similar downgrade of Egypt’s sovereign rating, reflecting increasing external financing risks given high external financing requirements, constrained external financings conditions and the sensitivity of Egypt’s broader financing plan to investor sentiment.

The credit rating agency said that all this comes against a background of high uncertainty on the exchange-rate trajectory, and reduced external liquidity buffers.

Fitch has also downgraded the Government Support Ratings (GSRs) of all four Egyptian banks to ‘b-‘ from ‘b’, reflecting the sovereign’s weaker ability to provide support, particularly in foreign currency (FC), which caps the domestic systemically important bank (D-SIB) GSR for Egyptian banks at ‘b-‘, one notch below the sovereign rating.

In early May, Fitch Ratings has downgraded Egypt’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘B’ from ‘B+’, with a negative outlook, the credit rating agency announced on Friday night.

In Fitch’s view, external financing risk has increased given high external financing requirements, constrained external financing conditions and the sensitivity of Egypt’s broader financing plan to investor sentiment. 

The agency indicated that this comes against a background of high uncertainty on the exchange-rate trajectory, and reduced external liquidity buffers. 

“We see a risk that a further delayed transition to a flexible exchange rate will further undermine confidence, and, potentially, delay the IMF programme. The rating action also captures a marked deterioration of public debt metrics, including a renewed deterioration in government interest costs/revenue, which, if not reversed, would put medium-term debt sustainability at risk,” the statement read.

Moreover, Fitch cited an increase in uncertainty around Egypt’s ability to meet its external financing needs, as a reason for the downgrade.