Fitch affirms National Bank of Egypt at ‘B+’/Stable; outlook stable

Fitch Ratings has affirmed National Bank of Egypt’s (NBE) Long-Term Issuer Default Rating (IDR) at ‘B+’ with a Stable Outlook.

It has also affirmed NBE’s Viability Rating (VR) at ‘b+’ and removed it from Rating Watch Negative (RWN). A full list of rating actions is below.

The affirmation of the bank’s VR and removal of RWN reflects Fitch’s view of receding near-term risks to Egyptian banks’ credit profiles, and in particular to their foreign-currency (FC) funding and liquidity, as a result of the fallout from the coronavirus crisis.

However, Fitch believes risks to Egyptian banks’ operating environment will remain heightened over the medium term, suggesting potential further pressures on banks’ financial metrics.

Banks’ liquidity positions have stabilised since July 2020, after a period of volatility in March-April 2020 caused by large capital outflows, although banks’ net foreign assets remained mildly negative in July 2020.

Some renewed investment portfolio inflows reported since July and the sovereign’s external borrowings have supported the sector’s FC liquidity.

However, a sustainable improvement would require the return of the country’s core FC receipts (such as remittances from Egyptian expatriates, tourism receipts, Suez Canal revenues) that are contingent on external economic factors.

Fitch expects Egypt’s current account deficit to widen to 5 percent of GDP in 2020 from 3.1percent in 2019, keeping pressure on FC reserves (USD38.4 billion at end-August).

Fitch expects a sharp deceleration in real GDP growth to 2 percent in 2020 from 5.6 percent in 2019, and only a moderate recovery to 3.3 percent in 2021.

The banking sector exposure to the most affected trade and services sectors (including tourism, transportation and Suez Canal) accounted for about 27 percent of total loans at end-2019 or 23 percent of GDP.

We expect that lower FC receipts will also constrain FC borrowers’ debt service capacity (FC lending was around a quarter of total sector loans).

Measures by the Central Bank of Egypt (CBE) to restructure credit facilities to the distressed tourism sector for three years, coupled with a six-month credit holidays for corporates and retail borrowers, could provide some relief, but will delay the recognition of impaired/stage 3 loans under IFRS 9 and understate the actual level of problem loans in the sector. Fitch expects banks’ stage 3 loans ratio to increase in 2021 as operating conditions will remain challenging.