Fitch Ratings has downgraded National Bank of Egypt's (S.A.E.) (NBE) Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Stable. Fitch has also downgraded the bank's Viability Rating (VR) to 'b-' from 'b' and Government Support Rating (GSR) to 'no support' from 'b-'.
The rating actions follow the downgrade of Egypt's sovereign rating on 3 November 2023 to 'B-' from 'B' (see Fitch Downgrades Egypt to 'B-'; Outlook Stable at www.fitchratings.com). They reflect the high correlation between the sovereign's and NBE's credit profiles, given the bank's sizeable holdings of Egyptian government debt (42% of total assets at end-2022) and significant lending to public-sector companies. The Stable Outlook on NBE's ratings reflects that on the Egyptian sovereign rating, which caps the bank's ratings at their current levels.
Fitch downgraded the operating environment score for Egyptian banks to 'b-'/stable from 'b'/negative in line with the sovereign rating action, as operating conditions for banks are correlated with the sovereign profile. It considers banks' significant exposure to the sovereign, tight external liquidity, high core inflation (40% in September 2023) and much weaker business conditions in the non-oil sector. Fitch sees real GDP growth slowing to 3.5% in the financial year ending June 2024 (FY24) and 4.5% in FY25 compared with 3.8% in FY22, with inflation averaging 33% in FY24 and we view a further currency adjustment as highly likely.