Fitch affirms National Bank of Egypt at B+ stable outlook, VR off Rating Watch Negative
Fitch Ratings has affirmed National Bank of Egypt's (NBE) Long-Term Issuer Default Rating (IDR) at B+ with a Stable Outlook; it has also affirmed NBE's Viability Rating (VR) at b+ and removed it from Rating Watch Negative (RWN).
The affirmation of the bank's VR and removal of RWN reflects Fitch's view of receding near-term risks to Egyptian banks' credit profiles, and in particular to their foreign-currency (FC) funding and liquidity, as a result of the fallout from the coronavirus crisis. However, Fitch believes risks to Egyptian banks' operating environment will remain heightened over the medium term, suggesting potential further pressures on banks' financial metrics.
Banks' liquidity positions have stabilised since July 2020, after a period of volatility in March-April 2020 caused by large capital outflows, although banks' net foreign assets remained mildly negative in July 2020. Some renewed investment portfolio inflows reported since July and the sovereign's external borrowings have supported the sector's FC liquidity.
However, a sustainable improvement would require the return of the country's core FC receipts (such as remittances from Egyptian expatriates, tourism receipts, Suez Canal revenues) that are contingent on external economic factors. Fitch expects Egypt's current account deficit to widen to 5% of GDP in 2020 from 3.1% in 2019, keeping pressure on FC reserves (USD38.4 billion at end-August).
Fitch expects a sharp deceleration in real GDP growth to 2%% in 2020 from 5.6% in 2019, and only a moderate recovery to 3.3% in 2021. The banking sector exposure to the most affected trade and services sectors (including tourism, transportation and Suez Canal) accounted for about 27% of total loans at end-2019 or 23% of GDP. We expect that lower FC receipts will also constrain FC borrowers' debt service capacity (FC lending was around a quarter of total sector loans).
Measures by the Central Bank of Egypt (CBE) to restructure credit facilities to the distressed tourism sector for three years, coupled with a six-month credit holidays for corporates and retail borrowers, could provide some relief, but will delay the recognition of impaired/stage 3 loans under IFRS 9 and understate the actual level of problem loans in the sector. Fitch expects banks' stage 3 loans ratio to increase in 2021 as operating conditions will remain challenging.