x Abu Dhabi, UAEMonday 24 July 2017

Ratings agency gives Egyptian banks a lift

S&P lowers the threat level on Egyptian banks as the credit rating on the country's government debt starts to recover.

Egypt's banks have narrowly avoided a ratings downgrade from Standard & Poor's as the country's government requests a US$4.8 billion (Dh17.62bn) loan from the IMF.

At the weekend the credit ratings agency lifted three Egyptian banks - Commercial International Bank, National Bank of Egypt and Banque Misr - from negative watch after taking the same action on the credit rating of Egypt's government.

"Negative watch" is defined by ratings agencies as an even chance of a downgrade within the next three months.

The three Egyptian banks were put on "negative watch" alongside the country's government because the credit ratings of banks cannot exceed their government's. Egypt's ratings - along with those of the banks - were affirmed at B. S&P said the risk of a downgrade had receded as a result of a "working arrangement" between the ruling Freedom and Justice Party and the country's armed forces.

"In our view, [the banks] face significant sovereign risk because they hold a high amount of government debt compared with their equity base and earnings capacity," the ratings agency said. "Our ratings on [National Bank of Egypt] and [Commercial International Bank] do not exceed those on the sovereign because we do not believe that the banks would withstand a scenario where Egypt defaulted on its obligations."

National Bank of Egypt and Banque Misr are also both owned by Egypt's government.

Commercial International Bank's shares rose 0.7 per cent to 29.07.Egyptian pounds each in trading yesterday.

Ironically, the bank has benefited from investor fears over Egypt's solvency. Its latest quarterly earnings beat analysts' estimates.

"A key highlight of the quarter is the hike in interest income from the investment in government securities, which surpassed that from lending to clients for the first time in at least eight quarters," analysts from Beltone Financial wrote in a research note.

However, S&P remains wary over the "delicate" balance of power in Egypt. The Salafist Nour Party, the next strongest Islamist faction in the country after the Muslim Brotherhood, has opposed the IMF's loan needed for the country to avoid bankruptcy as "un-Islamic".