Moody’s improves 5 banks’ outlooks to positive amid latest reforms and deals

Cairo – March 13, 2024: Moody’s ratings has announced its upgraded outlook for five of Egypt’s largest lenders, shifting to positive from negative, in response to the Central Bank of Egypt’s latest policy measures, currency devaluation, and fresh injection of foreign currency into the country through the Ras El Hekma deal and IMF loan expansion.

State-owned banks National Bank of Egypt, Banque Misr, and Banque du Caire, as well as Commercial International Bank (CIB) had their Caa1 long-term deposit ratings affirmed, with the Bank of Alexandria maintaining its B3 long-term deposit rating.

According to a release by the agency, “The change in outlook to positive reflects the very large foreign direct investment contribution by the United Arab Emirates, and the marked change in economic policy with a large devaluation of the currency and increase in interest rates that, if maintained, will help Egypt maintain an upsized IMF program.”

“The large devaluation of the currency and increase in interest rates will likely help Egypt maintain an upsized IMF program, reduce the risk of a renewed build-up of external imbalances and strengthen the economy's shock resilience over time,” Moody’s wrote.

In the release, Moody’s shared its optimism for the local baking sector, highlighting that the deals’ foreign currency injection and latest policy measures will have a positive impact on the wider banking sector.

Moody’s praised the banks’ resilient financial profiles, strong local currency liquidity, and the sector’s stable profitability. However, the ratings agency noted the sector’s large net foreign liabilities, recent currency devaluation and high interest rates as possibly creating “renewed pressure on banks' capital, asset quality and profitability metrics”.

“A ratings upgrade would require a material strengthening of the operating environment and in the government's credit profile, and provided that the banks maintain their resilient financial performance and adequate foreign currency liquidity,” Moody’s wrote.

On March 7, Moody’s affirmed Egypt’s sovereign Caa1 rating and changed its outlook from negative to positive. The agency had previously lowered its outlook to negative from stable in January.