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CPI Financial: CI holds National Bank of Egypt on Negative Outlook

In common with the other Egyptian banks, the major rating constraints are related to the risks of a balance of payments and/or currency crisis.
11.09.11 | Interesting article at CPI Financial

Capital Intelligence (CI) has affirmed National Bank of Egypt (NBE)'s Financial Strength Rating (FSR) at BB+; the Support Rating is affirmed at 3 based on the government's full ownership, the bank's systemic importance and the high likelihood of support.

The Foreign Currency (FC) Long and Short Term ratings are also affirmed at BB+ and B, respectively, and are set at the level of the sovereign ratings for Egypt. All ratings carry a Negative Outlook and remain under significant pressure given the ongoing political and economic risks in Egypt.

The bank's ratings are supported by a much improved NPL ratio (albeit through write-offs), the expectation of further capital support from the Egyptian government and the bank's all-round product and market strength. NBE's liquidity remains strong due to its commanding retail deposit funding base, a low share of loans to total assets and large holdings of local currency treasury bills.

In common with the other Egyptian banks, the major rating constraints are related to the risks of a balance of payments and/or currency crisis and ongoing political instability. Operating conditions are expected to remain challenging and the economic contraction likely to lead to renewed growth in NPLs. The bank's profitability is low, and expected to decline further because of higher salary costs and impairment charges. Although capital adequacy is at an acceptable level, the bank's total capital/total assets ratio is considered low in the current environment where greater capital buffers are necessary.

NBE was originally established in June 1898 as the first Egyptian private joint-stock commercial bank. It is wholly owned by the Egyptian state and operates under the auspices of the Ministry of Finance. Due to its systemic importance, NBE has always been at the forefront of changes which have taken place in the Egyptian banking system. In the course of the past few years, NBE's remit as the market leader servicing private and public sector corporate as well as individual customers has expanded significantly relative to its historic policy role.

The bank has gradually advanced in the implementation of its restructuring and modernisation programme. NBE operates as a universal bank with an extensive presence in retail and corporate banking markets, including money and capital markets. It also holds a portfolio of direct equity investments. Through its extensive domestic network of 250 branches the bank has an estimated 25 per cent share of the banking system's total assets and customer deposits. NBE's international network comprises a subsidiary in the UK as well as branches in New York and Shanghai and two representative offices in Johannesburg and Dubai.