International rating agency Fitch Ratings has assigned a short-term foreign currency rating of 'B' to Egyptian American Bank (EAB) and affirmed its long-term foreign currency rating of 'BB+' with a stable outlook and support rating of '4T'. The agency has also assigned national ratings of 'F1 (egy)' short-term and 'A+(egy)' long-term to the bank.
These ratings reflect EAB's reasonably strong franchise in Egypt, good capitalization of 18.37 percent at end-2001, and involvement of shareholders through the secondment of senior management. However, they also take account of profit pressures and a deteriorating loan quality trend in the current difficult operating environment. These conditions are expected to persist in the near term.
Balance sheet growth has slowed after peaking in 1999, like most of its peers, and profit pressures have been evident. The poor operating environment has led to deterioration in loan quality, with non-performing loans at 6.5 percent of loans at end-2001, compared to 1.7 percent in 1999.
While loan loss reserves have risen, coverage ratios have fallen to 48 percent, and as a consequence Fitch expects an ongoing need for provisions. Increased provisioning has been partially offset by foreign currency profits and revaluation gains. Core revenues have, however, been impacted by a slowdown in volumes.
EAB's key shareholder is American Express Bank (Amex), which owns 40.8 percent with management control, while state-owned Bank of Alexandria owns 32.5 percent. Risk management is closely aligned to its key shareholder, with a numbers of senior management seconded from Amex. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
