Fitch Affirms 3 Egyptian Banks; Outlooks Stable

Fitch Ratings has affirmed National Bank of Egypt SAE’s ( NBE ) and Egypt-based Commercial International Bank’s (CIB) Long-term Issuer Default Ratings (IDR) at ‘B-‘ with Stable Outlook. At the same time, we have affirmed NBE ‘s and CIB’s Viability Ratings (VR) at ‘b-‘ and ‘b’ respectively.

We have also affirmed Credit Agricole Egypt ‘s ( CAE ) Support Rating at ‘4’ and its National Long- and Short-term Ratings at ‘AA+(egy)’ and ‘F1+(egy)’, respectively.

The Long-term IDR of National Bank of Egypt (UK) Ltd (NBEUK), a wholly-owned subsidiary of NBE , has been affirmed at ‘B-‘ with Stable Outlook.

All ratings with the exception of the National Ratings are correlated with and, in the case of CIB, constrained by Egypt’s still challenging operating environment and its sovereign rating (B-/Stable; see ‘Fitch Affirms Egypt at ‘B-‘; Outlook Stable’, dated 27 June 2014, available on

A full list of rating actions is available at the end of this rating action commentary.


NBE ‘s and CIB’s Long-term IDRs are driven by their respective VRs.

Key drivers of both NBE ‘s and CIBs VRs are:

-Significant exposure to Egyptian sovereign debt (47% and 46% of total assets for NBE and CIB respectively), which results in a high correlation of sovereign and respective bank risk

-Significant lending concentration with the 20 largest customer exposures accounting for 45% ( NBE ) and 38% (CIB) of total loans respectively at end-1H14

-Acceptable asset quality with solid coverage ratios. Asset quality is, in our view, however still vulnerable to the banks’ significant lending concentration and the uncertain macroeconomic outlook for Egypt

-Adequate and broadly stable profitability despite limited lending opportunities in the domestic market. Earnings are, however, to a large degree dependent on the banks’ large sovereign debt positions and are affected by changes in government bond yields

-Adequate structural liquidity profiles with low loans/deposits ratios, strong buffers of liquid assets (almost exclusively Egyptian sovereign debt) and adequate access to foreign currency (largely US dollar) liquidity

-Reported capital ratios are just acceptable for NBE (Fitch core capital ratio of 11.2% at end-1H14) and adequate for CIB at 17.2%. However, in line with local regulation, domestic sovereign debt is zero per cent risk-weighted which, in our view, does not reflect the significant credit risk from the banks’ sovereign debt positions

CIB’s VR is rated one notch above its Long-term IDR (and the Egyptian sovereign rating) primarily for the following reasons:

-CIB’s financial metrics, including profitability, are stronger and less volatile than those of its peers

-The bank’s risk control framework is, in our view, stronger than that of its peers which should ultimately provide stronger protection against negative credit events (e.g. large corporate defaults)

-The bank’s track record in executing its strategy is, in our view, consistent and strong. In addition, as a private sector bank CIB has greater flexibility to adjust its risk profile to volatility in the operating environment

-CIB’s funding profile almost exclusively relates to stable and fairly granular customer deposits and its funding franchise has proven stable during previous periods of market stress

As a result, while CIB’s credit risk profile remains strongly correlated with that of the Egyptian sovereign, its intrinsic creditworthiness is in our view sufficiently strong for the bank’s VR to be a notch above the sovereign rating in line with our criteria, the rating agency added.


NBE ‘s and CIB’s VRs and IDRs are primarily sensitive to changes in the operating environment, notably asset quality trends, as well as changes in Egypt’s sovereign rating.

For both banks, a combination of reduced lending concentration risks, reduced direct sovereign debt exposure and improvements in Egypt’s sovereign rating could lead to an upgrade of their VRs and, consequently, their IDRs.

Conversely, worsening asset quality, for instance from a large corporate default, ultimately affecting capitalisation, a further sovereign downgrade and – in the case of CIB – further increasing exposure to domestic sovereign debt could lead to a downgrade of the VRs and, consequently, their IDRs.


Both NBE ‘s and CIB’s Support Rating Floors (SRFs) are at ‘B-‘, equalised with the Egyptian sovereign rating.

While the Egyptian state has, in our view, a strong propensity to support NBE if required, its ability to do so is severely constrained by the state’s weak credit profile (as reflected in Egypt’s ‘B-‘ sovereign rating).

NBE is wholly owned by the Egyptian government. It is Egypt’s largest bank by assets, with a dominant domestic franchise, especially in customer deposits. It is also Egypt’s biggest primary dealer in government debt. At end-2013, its market share in domestic lending and deposits was 21% and 26% respectively.

CIB’s Long-term IDR, driven by its VR, is constrained by Egypt’s Country Ceiling of ‘B-‘. CIB, a listed bank with a diversified shareholder base, is the leading domestic private sector bank with lending and deposit market shares of 8% each at end-2013.

CAE ‘s Support Rating reflects Fitch’s opinion that Credit Agricole (A/Stable) has a high propensity to support its Egyptian subsidiary. However, the likelihood of support is constrained by Egypt’s sovereign rating and Credit Agricole’s support propensity could change in the event of a severe deterioration in the Egyptian operating environment, which Fitch does not expect. CAE is about 60%-owned by Credit Agricole and is part of Credit Agricole’s presence and strategy in the Middle East and North Africa.

The Stable Outlook on NBE ‘s and CIB’s IDRs reflects that on Egypt’s sovereign rating.


NBE ‘s and CIB’s Support Ratings are primarily sensitive to a change in Egypt’s ability to provide support as reflected in the sovereign rating, as Fitch considers the sovereign’s willingness to support domestic banks is, and will remain, strong.

CAE ‘s Support Rating is primarily sensitive to any change in Credit Agricole’s propensity to provide support. Given CAE ‘s small size compared with Credit Agricole ( CAE accounted for 0.2% of group assets at end-1H14) as well as Credit Agricole’s solid investment grade rating, the parent’s ability to support is unquestionable and therefore not a primary rating sensitivity. Credit Agricole’s willingness to provide support could be sensitive to a severe deterioration in Egypt’s operating environment, although we do not consider this to be likely.


NBE ‘s, CIB’s and CAE ‘s National Ratings reflect their relative ranking in the market for local currency risk.


The ratings are sensitive to any change in Fitch’s view of the relative ranking of the banks. The Outlooks on the National Ratings are Stable, reflecting Fitch’s expectation that the relative ranking of the three banks will remain stable.


NBEUK’s IDRs are in line with its parent’s IDRs. They reflect Fitch’s view that there is a limited probability of support from the Egyptian state via NBE .

Given that virtually all of NBE UK’s funding and its main business are dependent on its connection to Egypt and Egyptian institutions (specifically government institutions), through NBE , and that NBEUK’s strategy capitalises on NBE ‘s franchise, Fitch has not assigned a VR to NBEUK.


NBEUK’s ratings are broadly sensitive to the same factors as NBE ‘s ratings described above.

The rating actions are as follows:


Long-term IDR affirmed ‘B-‘; Outlook Stable

Short-term IDR affirmed at ‘B’

National Long-term Rating affirmed at ‘AA-(egy)’; Outlook Stable

National Short-term Rating affirmed at ‘F1+(egy)’

Viability Rating affirmed at ‘b-‘

Support Rating affirmed at ‘5’

Support Rating Floor affirmed at ‘B-‘

Senior unsecured debt affirmed at ‘B-‘


Long-term IDR affirmed ‘B-‘; Outlook Stable

Short-term IDR affirmed at ‘B’

Support Rating affirmed at ‘5’


Long-term IDR affirmed ‘B-‘; Outlook Stable

Short-term IDR affirmed at ‘B’

National Long-term Rating affirmed at ‘AA(egy)’; Outlook Stable

National Short-term Rating affirmed at ‘F1+(egy)’

Viability Rating affirmed at ‘b’

Support Rating affirmed at ‘5’

Support Rating Floor affirmed at ‘B-‘


National Long-term Rating affirmed at ‘AA+(egy)’; Outlook Stable

National Short-term Rating affirmed at ‘F1+(egy)’

Support Rating affirmed at ‘4’

Source: Reuters