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.
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.