Egypt: Misr bank rated “B +” by Fitch

Egyptian bank Banque Misr (BM) has been assigned a « B + » rating from Fitch Ratings due to the Egyptian authorities’ limited capacity to support when needed. The outlook remains stable and is backed by the country’s sovereign rating.

Egyptian banks will come under further pressure from risks to their operating environment, Fitch said, leading the agency to put down a negative outlook. On the other hand, the short-term risks weighing on the credit profiles of Egyptian banks, and in particular on their financing and their liquidity in foreign currency (FC) due to the fallout from the coronavirus crisis, are diminishing.

The report highlights a stabilization of liquidity positions of Egyptian banks since July 2020, after a period of volatility in March-April 2020 caused by large capital outflows. Fitch expects Egypt’s current account deficit to widen to 5% of GDP in 2020 from 3.1% in 2019, maintaining pressure on FC reserves ($ 38.4 billion at end of August).

On a macroeconomic level, GDP is expected to decelerate to 2.5% in 2021, well below the average growth of 5.5% in 2018 and 2019. “We expect the decline in FC revenues will also limit service capacity. debt of FC borrowers (FC loans represent about a quarter of total sector loans), ”notes Fitch.

Measures taken by the Central Bank of Egypt (CBE) to restructure credit facilities to the struggling tourism sector for three years, coupled with a six-month credit holiday for businesses and retail borrowers, could provide a some relief but will delay the recognition of the 3 loans under IFRS 9 and underestimate the level of problematic loans in the sector. Fitch expects banks’ Stage 3 loan ratios to increase in 2021 as operating conditions remain challenging.

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