Moody's criticised for lowering Egyptian bank ratings

Moody's has downgraded the local-currency deposit rating of five Egyptian banks, including the  Banque Du Caire. [Waleed Abu al-Khair/Al-Shorfa]

Moody's has downgraded the local-currency deposit rating of five Egyptian banks, including the Banque Du Caire. [Waleed Abu al-Khair/Al-Shorfa]

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Egyptian financial experts and economists criticized Moody's, the international credit ratings agency, for downgrading the local-currency deposit rating of five Egyptian banks and for tying this move to its downgrade of Egypt's credit rating a week ago.

Moody's lowered the ratings of five banks on March 26th: the National Bank of Egypt, Banque Misr, Banque Du Caire, Commercial International Bank (Egypt) and the Bank of Alexandria. A week earlier, it lowered the rating of Egyptian government bonds from B3 to Caa1.

"A 'C' rating is the lowest possible rating a bank can receive," Shahir Abdullah, an economics professor at Ain Shams University, told Al-Shorfa. "It signifies a very high credit risk and that the banks could fail to pay or will be in arrears on loan payments."

The agency attributed its decision to the disturbances in Egypt and the instability of its political situation.

The new rating "reflects to varying degrees the government's diminished ability to support the banks and the intensifying credit link between the banks' balance sheets and sovereign credit risk" Moody's said in a statement.

Experts say Moody's rating 'too harsh'

While it is standard practice for credit rating agencies to base their assessment on the security and political situation of the country because of the direct impact these have on credit risk by world standards, Abdullah said, he said Moody's rating was unfair to Egyptian banks.

"The agency tied the banks' ratings to the recent rating of Egyptian government bonds because the banks are heavily invested in government debt instruments, bonds in particular," he said.

Banking expert Mahmoud Seif, a senior lecturer at the Zagazig University Faculty of Economics, said the banks' ratings were "unfair".

The banks have proven their merit over the last two years, he said, and have shown a high level of professionalism in dealing with the successive financial and economic crises that hit Egypt.

"Although the ratings were harsh on Egyptian banks that does not in actuality mean that the banks are on the verge of crises, on account of the ratings they received being tied to Egypt's credit rating," he said.

"The worldwide standards need to be re-examined, especially in relation to tying ratings to the credit status of the state as a whole," he said. "Egyptian banks are distinguished by their excellent financial status and good performance, and the assets and capitals they hold are safe."

Seif said the new rulings will negatively impact Egypt's reputation, and expressed concern that they might affect future investments and the flow of overseas imports, which in general rely on credit accounts with Egyptian banks.

"So it falls to the government to attract massive investments while working to reinforce security and political stability in order to restore the international ratings," he said.

Financial expert Khairy Mohammed, bank performance monitor at Giza Financial Brokerage Company, said the ratings were "too harsh", especially since Egypt and its governmental and large private institutions have yet to face difficulty in making payments on foreign debt.

The performance of banking stocks is strong on the Egyptian Stock Exchange, Mohammed said, and the deficit in foreign currency has not resulted in any noticeable decline in the past two months, which is an indication of the effort the banks are making to get out of the crisis.

"Overall, investment and economic activity seem to be running smoothly thanks to the flow of Libyan, Qatari and Saudi funds [into the country]," Mohammed said, and the door has been opened for foreign and Arab investment in Egypt.

These are excellent indications of Egypt's financial status and its ability to meet its international financial obligations, he said.

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    محمد ثامر

    2013-4-13

    Even if this is a Moody’s rating, I don’t think it will affect anything in Egypt if the opposition pacifies a little bit in the streets. It is agreed that the protests would have been the reason for this drop in rating. However, even though this rating, nothing has changed in the Egyptian Banks' transactions with their clients before or after the rating. I have many friends working in Banks, and I asked them about the implications of such rating and they told me that in the Egyptian Banks most of the transactions are between Egyptian citizens and most of the foreigners are dealing with Foreign Banks. They also affirmed that the loan requested by Egypt could have been the reason for such rating in order to show the World Bank the real rating of Egypt. But all these issues don’t matter as long as the Egyptian citizens still believe that Egyptian Banks are capable of fulfilling their functions related to interests and profits whenever the clients needs them. However, we need to put into consideration that it would be a good step in the path of improvement to enhance the security conditions, which had been the main reason in the drop in this rating from my point of view. Many countries have been experiencing economic and political problems but that didn’t affect the rating of their Banks which affirms the necessity of separating the population and the politics, and this will never happen unless we give major importance and care to the Egyptian youth who need to be given a chance to work. If the youth get busy with working and doing something much more important than protests, they will not seek to waste their times and so we will have a comprehensive system for labor and investment. This will be reflected in an enhancement of all ratings in all aspects and not only Banks.

  • شادي قصي

    2013-4-13

    This reduction of the rating of the Egyptian banks certainly stems from the security and economic situation of the country. Of course taking such decision by Moody's Corporation was aiming to prevent the World Bank of giving Egypt such a loan. It is possible that Egypt can't pay back the loan due to what is happening in Egypt of successive events and the possibility that President Morsi won't complete his presidential period. We can call all these consequences a full plot aiming at the collapse of the Egyptian economy; we hope this does not happen.

  • تامر بدر

    2013-4-13

    Now are the economist experts showing up? So, where have you been before? You come now to talk after the problems of banks ranking occurred. It is supposed that since experts know about this problem, they could react in the beginning and provide the stated propositions by which we could understand how to overcome the situation. We wish to be all aware and having sense about what happens. God helps the Egyptian people.

  • عثمان الجمل

    2013-4-11

    O God! We don't know where is Egypt going to? Every two or three days, there must be a problem and we don't understand what it is! With all these incidents, Egyptians try to transcend them, but the biggest problem is that there are too many problems that Egyptians need to pass; everyday there are troubles and suffering, even livelihood doesn't come easily. We saw what happened in classifying banks, what banks do! The problem is that there is not a proper management for Egyptian banks; everybody wants to get as much money as he can, but they don't know that Egypt does not have more welfare, all its welfare is looted, God knows by who! Now Egypt is in disorder. At the same time, the opposition is weaving threads on Egyptians to win their emotions, then there will be chaos because Egyptians will go for the opposition. In their point of view, there is no progress with the President Mohamed Morsi although he is doing his best efforts, goes to most countries and discusses the issues of Egypt, its debts and budget. Nevertheless soon banks will declare bankruptcy because Egyptians and businessmen, in particular, and investors are scared of investing in Egypt. They also don't prefer to put their money in Egyptian banks because any crisis might hurt them and the opposition is looking for this of course. We don't know what to do or what is the solution. We say that God is our supporter and best helper against anyone who tries to destroy Egypt.

  • خالد مازن

    2013-4-11

    I swear that the conditions of Egypt are very strange and everything in it is collapsing. I think that banks are no exception in this context. Certainly, we need good expertise to get rid of every crisis that surround us. However, the problem is that we see that there is no interest at all and they seem indifferent. Anyone reading the banks rankings in Egypt would feel sorry, but these rankings are very normal under the crisis surrounding us. The “C” ranking is the lowest ranking in the Egyptian banks, and if we compared this to other states we would discover that we are in the bottom. It seems that we became habituated to this and we do not realize what we have to do in order to get rid of all the troubles that face us. Egyptian people who have money and intend to deposit it in the banks would be afraid when they see all those conditions imposed by Moody's, they would feel that they should not put their money in the banks because the money is losing value and they would not benefit in any way. Economy officials are required to make an appearance to the mass media to explain the situation and assure people. However, there is no interest and anyone can analyze as he wishes. I think that there should be interest because we do not know what would be the end of the Moody's rankings which is the talk of everybody everywhere these days. I wish there are experts coming here because this way our economy will be lost and we will never be able to compensate any disaster that may befall us.

  • سهيل سامى

    2013-4-10

    Frankly everything might happen in the age of Mohamed Morsi as long as there is destruction, ruined economy and falling state, all this is available and don't be surprised at anything because the state is not run by any administration at all or any awareness because they don't understand how the country is managed; it is very possible that our banks might be rated as lower than C because there are no economic plans; experts must not criticize Moody's Foundation because it deals with census with and numbers for certainty. But here in Egypt we are raving, we used to say that Mubarak destroyed it and Mubarak is a thief and so on, but actually he had a group of working associates who had never reached us to such conditions. Although I don't know a lot about economy, yet when people hear that news spread, I myself will withdraw my money from Egyptian banks because from these words it seems as if my money is not secure in a bank, because when they say that there are high credit risks and banks will not be able to pay money to people, so I better withdraw my money and keep it at home or in any foreign bank because Egyptian banks are dying and God save us. I feel that this is the end of Egyptian banks, a year or two they will pay salaries for employees and pensions only. If the political tension in Egypt is the reason for our current conditions, everyone must know that the reasons of political conflicts increase, they don't get less and will destroy everything, and people must be warned so that everything is open to people, we have had enough lies and fraud.