Moody's Investors Service has downgraded to D with a stable outlook, from D+ with a negative outlook, the financial strength rating (FSR) of National Bank of Egypt (NBE). The bank's foreign currency deposit ratings remain unchanged at Ba2/NP, the Arab Republic of Egypt's country ceiling for foreign currency deposits, with a stable outlook.
In lowering NBE's FSR, Moody's has taken into account the bank's increased problem loan book, which has come about, in part, as a result of the tightening classification requirements. The rating has been under pressure due to NBE's weak financial fundamentals, with high and inadequately covered NPLs, low capitalisation, and weak earning power, reflecting inadequate risk management procedures, bureaucratic customs and 'public sector mentality'. Over the recent past, however, NBE has directed its efforts towards addressing these issues, restructuring its operations and improving its competitive abilities. The focus is on streamlining the banking functions and the network, enhancing internal policies and procedures, strengthening risk management and controls, upgrading systems and employee calibre, and raising efficiency levels.
Management is also confident that an agreement with the government regarding the settlement of the sizeable NPLs in its public sector enterprise portfolio will be reached, while we also expect the bank to continue to sell its equity participations and realise capital gains, and the government to recapitalise the bank before the year-end.
According to Moody's, failure to urgently address some of the issues faced by NBE -- and specifically the settlement of public sector NPLs, and further increasing its capitalisation -- could lead to further downgrades. Conversely, the ratings could be positively affected over the medium- to long term if the bank is successful in materially enhancing its asset quality, core earnings and capitalisation levels, and in implementing its restructuring programme.
Headquartered in Cairo, Egypt, National Bank of Egypt had total assets of EGP178.2 billion (US$31.1 billion) as of December 2005.
