Economic analysts said that the recent credit downgrade given to Egyptian banks last week by the Fitch Group credit rating agency fails to take into account positive economy developments, particularly the country’s recent securing of $12bn in financial aid from Gulf countries.
They further stated that the country’s various credit downgrades have not had a severe effect on Egypt’s banking sector, or related companies listed on the country’s stock exchange, which were described as capable of remaining steadfast and persevering through tough political and economic conditions. Despite this, they said that the country has witnessed “high” rates of growth and large numbers of deposits being made in its banking sector, which is largely seen as the most preferable safe haven in which to store money.
The analysts stated that the recent downgrade would not have a large affect on Egypt’s banking sector, adding that the value of stock for some banks may decrease as a result, but only for one or two trading sessions at the most. They claimed that Egyptian banks listed on the country’s stock market have consistently seen high rates of growth immediately following all of Fitch’s previous and most recent credit downgrades, varying from anywhere between 17% to 50%.
This is the fourth time that Fitch has downgraded the long-term credit rating for two of Egypt’s largest banks in the last two years. Those banks include the National Bank of Egypt and the Commercial International Bank (C.I.B.), whose ratings were downgraded from B to B-. Fitch officials attributed the downgrade of the former to the bank’s policy of relying too heavily on “the expectation that the Egyptian pound will be continue to be subsidised by the government if need be.”
C.I.B.’s credit downgrade meanwhile was attributed to the bank’s reliance of Egyptian sovereign debt at a time when the country is experiencing difficult economic circumstances.
Wael Ziyada, head of research at EFG-Hermes, stated that predictions regarding Egypt’s long-term credit usually take long periods of time, and that the quick nature by which Fitch announced its most recent downgrade casts doubt on the validity of such predictions. He added that the downgrade did not take into account a recent $12bn aid package received by Egypt last week from a number of Gulf countries, a package which will help ease the country’s hard currency crisis.
He argued that the downgrade came largely as a result of the availability of foreign currency on the Egyptian market and the ease with which it could be distributed to clients, especially considering constant fluctuations in the country’s foreign currency exchange rate. Such factors would have a large affect on investment rates within the country, he added.
Egypt’s ability to continue to attract investment, he said, was also one of the most important factors contributing to Fitch’s decision to downgrade the country’s credit rating. Other factors included the performance of local currency and the ability of the country’s financial institutions to distribute foreign currency to clients.
Hani Genina, research head at Pharos Holding for Financial Investments, stated that Fitch’s recent downgrade came quickly after the recent events of 30 June and Egypt’s securing of Gulf aid, and pointed to the ability of such rating agencies to affect the opinion of the international community regarding events taking place in countries throughout the world.
He pointed out that credit rating procedures often take into account the political environment of those countries that are up for study at any given time. Political instability seen within Egypt over the last two months and negative expectations held by many regarding the country’s economic future are largely the drivers behind Fitch’s downgrade again of Egyptian banks’ credit, Genina said.
He stated that the economic viability of banks listed on Egypt’s stock exchange would not be affected by the recent downgrade, as the country’s banking sector is one of the nation’s strongest economic indicators.
Translated from Al-Borsa newspaper: http://goo.gl/dScYM