S&P Cuts 3 Egyptian Banks To ‘B-/C’ After Sovereign Action
The rating actions on NBE, BM, and CIB follow our lowering of the long-term ratings on the Arab Republic of Egypt (foreign and local currency sovereign credit ratings B-/Negative/B; see “Long-Term Ratings On Egypt Lowered To ‘B-‘ On Escalation Of Political Tensions; Outlook Negative,” published on Dec. 24, 2012, on Ratings Direct on the Global Credit Portal).
In our opinion, political and social tensions in Egypt have escalated and are likely to remain elevated over the medium term. The increased polarization between political forces is likely to weaken the sovereign’s ability to deliver sustainable public finances, promote balance growth, and respond to further economic or political shocks.
Our ‘B-‘ long-term ratings on NBE, BM, and CIB are capped at the level of the sovereign rating on Egypt and factor in our opinion of the risks related to operating in the country. In our view, NBE, BM, and CIB face significant sovereign risk because they hold a high amount of government debt compared to their equity bases and earnings capacity. We assess the stand-alone credit profiles (SACPs) for BM, NBE, and CIB at ‘b’, ‘b+’, and ‘bb-‘, respectively. Our ratings on NBE, BM, and CIB do not exceed those on the sovereign because we believe that the banks are unlikely to withstand a scenario where Egypt defaulted on its obligations.
We consider NBE and BM to be government-related entities under our methodology, given their 100% ownership by the Egyptian government. We factor in no uplift into their SACPs because they are higher than the long-term rating on the sovereign.
The negative outlook on NBE, BM, and CIB mirrors the negative outlook on Egypt. We would lower our ratings on NBE, BM, and CIB if we were to lower our ratings on the sovereign. A lowering of the sovereign rating will have a direct negative impact on NBE, BM, and CIB because the ratings on the banks are constrained at the level of the rating on the sovereign. We would revise the outlooks on the banks to stable if we were to change the outlook on the sovereign to stable.
RELATED CRITERIA AND RESEARCH
— Long-Term Ratings On Egypt Lowered To ‘B-‘ On Escalation Of Political Tensions; Outlook Negative, Dec. 24, 2012
— Credit FAQ: Why We Lowered The Ratings On Egyptian Banks And What Risks Lie Ahead, May 14, 2012
— Banks: Rating Methodology And Assumptions, Nov. 9, 2011
— Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
— Group Rating Methodology And Assumptions, Nov. 9, 2011
— Bank Capital Methodology And Assumptions, Dec. 6, 2010
— Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
— Use Of CreditWatch And Outlooks, Sept. 14, 2009
RATINGS LIST
Downgraded/Outlook Action
To From
National Bank of Egypt
Banque Misr
Commercial International Bank (Egypt) S.A.E.
Counterparty credit ratings B-/Negative/C B/Negative/B
