Fitch Affirms National Bank of Egypt at 'BB'

Fitch Ratings has affirmed National Bank of Egypt's (NBE) Long-term Issuer Default Rating (IDR) at 'BB' with a Negative Outlook; 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 per cent 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.

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 Q111. 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.

Capital remains low. Despite higher levels of retained earnings as profitability improves, NBE's equity/assets ratio, at 4.2 per cent, remains below the sector average and well below that of its private sector peers. The bank's Tier 1 ratio of 12.4 per cent at end-December 2010 was boosted by its substantial holding of zero-risk-weighted government debt.