Fitch Downgrades 4 Egyptian Banks to 'B' on Sovereign Downgrade; Outlook Negative

Fitch Ratings - Dubai - 17 May 2023: 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+'. Their Outlooks remain Negative. The four banks are the National Bank of Egypt (S.A.E.) (NBE), Banque Misr (S.A.E) (BM), Banque Du Caire S.A.E. (BDC) and Commercial International Bank (Egypt) S.A.E (CIB).

The rating downgrades follow a recent similar downgrade of Egypt's sovereign rating (see 'Fitch Downgrades Egypt to 'B'; Outlook Negative', dated 5 May 2023 at www.fitchratings.com), 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. All this comes against a background of high uncertainty on the exchange-rate trajectory, and reduced external liquidity buffers.

We have also downgraded the Government Support Ratings (GSRs) of all four 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.

The issuers' National Ratings are unaffected.

KEY RATING DRIVERS

The Long-Term IDRs of NBE, BM, BDC and CIB are driven by the banks' 'b' VRs. The VRs reflect the strong correlation between the banks' operating environment and credit profiles and the credit profile of the sovereign given their significant sovereign exposure through sizeable holdings of Egyptian government debt and lending to public-sector companies. For the banking sector as a whole, we calculate total exposure to the sovereign and broader public sector at almost 75% of total assets or around 11x banks' equity at end-2022.