Fitch Ratings has affirmed National Bank of Egypt’s (NBE) long-term issuer default rating (IDR) at ‘BB’ with a negative outlook. The agency has also affirmed the bank’s viability rating at ‘bb-‘ and removed it from Rating Watch Negative (RWN).
“NBE’s IDRs, National Ratings and Support Rating reflect Fitch’s view of support from the Egyptian authorities in case of need. Fitch’s view of support is driven by the bank’s 100% government ownership, its size and its systemic importance, and the Egyptian authorities’ supportive attitude towards the banking sector. However, given the possible constraints on the authorities’ ability to provide such support, Fitch views the probability of support as moderate. NBE’s long-term IDR and National Rating have a negative outlook, mirroring the outlook on the Arab Republic of Egypt’s ratings,” Fitch in a statement said
“The material improvement in performance since 2009 with stronger profitability and better loan quality ratios, support the bank’s viability rating. NBE’s performance was less affected than Fitch had feared by the unrest in Egypt in 1Q11. Profitability has held up fairly well so far and the bank remains highly liquid. It is still too early to judge the longer-term effect of the unrest and the depressed economic environment on loan quality, but so far the indications are less negative than expected; hence the removal of the bank’s viability rating from RWN,” it added.
“Capital remains low. Despite higher levels of retained earnings as profitability improves, NBE’s equity/assets ratio, at 4.2%, remains below the sector average and well below that of its private sector peers. The bank’s Tier 1 ratio of 12.4% at end-December 2010 was boosted by its substantial holding of zero-risk-weighted government debt.”
“At end-March 2011, impaired loans had decreased to EGP8.8bn (9.7% of the loan book) and were fully reserved. The decrease was a result of the bank writing off about EGP10bn of loans in the six months to December 2010. Fitch expects impaired loans to rise across the banking sector in H211 and possibly also in 2012. However, even with this expected increase, the level of impaired loans and impairment charges are not likely to be anywhere near those seen at NBE prior to 2009.”