Challenging Egyptian Banking Operating Environment to Continue

Fitch Ratings-London/Dubai-22 November 2023: Fitch Ratings has downgraded the operating environment score of the four Egyptian banks under its coverage to ‘b-’/stable from ‘b’/negative as part of its peer review of the banks, which are National Bank of Egypt (S.A.E), Banque Misr (S.A.E), Commercial International Bank (Egypt) S.A.E and Banque du Caire (S.A.E). This review followed the downgrade of Egypt’s sovereign rating to ‘B-’/Stable from ‘B’/Negative (see: Fitch Downgrades Egypt to ‘B-’; Outlook Stable, published on 3 November 2023 at www.fitchratings.com).

The operating environment score is in line with the sovereign rating as operating conditions for banks are highly correlated with the sovereign profile. It considers the banks' significant exposure to the sovereign, which we estimate to be almost 50% of the banking sector’s total assets, and around 8x banks’ capital at end-July 2023. It also considers tight external liquidity with persisting foreign-currency (FC) shortages weighing on credit demand, high core inflation (38.1% in October) and rising input costs for corporates underpinning weak business conditions in the non-oil sector, as indicated by Purchasing Manager Index (PMI) readings.