Moody's cuts ratings for Egyptian banks

What's Down: Ratings Agency Moody's Investor Service downgraded the local currency deposit ratings of five of Egypt's biggest commercial banks.

Moody's Investors Service has lowered the local currency deposit ratings of five of Egypt's biggest commercial banks.

National Bank of Egypt, Banque Misr and Banque Du Caire, the country's biggest state banks, were cut to "B1" from "Ba3". Bank of Alexandria, the Egyptian unit of Italy's Intesa Sanpaolo, was lowered to "Ba2" from "Ba1" and Commercial International Bank of Egypt, the largest publicly listed lender in the country, was cut to "Ba3" from "Ba2". All of the banks were given a "negative" outlook.

The move followed a decision last week to cut Egypt's government bond ratings to "B1" from "Ba3". Moody's cited the banks' high exposure to Egyptian government securities and the government's declining ability to provide support to the lenders if they should need it.

Egyptian banks were hurt by the uprising that toppled Hosni Mubarak from the presidency this year. The political turmoil and accompanying industrial strikes of the period prompted the central bank to close the banks for nearly two weeks.

The country's GDP contracted by 4.2 per cent in the first quarter, foreign direct investment shrank dramatically in the first half and tourist arrivals fell by 42 per cent in the second quarter.

Moody's said it expected a deterioration of Egyptian banks' asset quality and profitability through higher provisioning and lower revenuebecause of reduced loan volumes.

Brokerage commissions, a strong revenue source for banks prior to the revolution, have declined on thin trading.

The benchmark EGX 30 Index is down 38 per cent from its highs in January, trading at about 4,600. Similarly, volumes have been heavily cut, with traded value down to 100 million Egyptian pounds, from 1.6 billion pounds eight months ago. Egypt's exchange was forced to close for two months this year as foreign investors exited their positions in Egyptian companies.

"They are managing despite the crisis, and their comeback will depend on the length of the transitionary period and future economic policy," said Jaap Meijer, a senior banking analyst at AlembicHC in Dubai. The ruling military council said it would hand over power after parliamentary elections, beginning this month, and a subsequent presidential vote.