Fitch Downgrades Banque Misr To B- Outlook Stable

Fitch Ratings has downgraded Banque Misr’s (S.A.E.) (BM) 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 They reflect the high correlation between the sovereign’s and BM’s credit profiles given the bank’s sizeable holdings of Egyptian government debt (31% of total assets at end-1Q23) and significant lending to public-sector companies. The Stable Outlook on BM’s ratings reflect that on the Egyptian sovereign rating, which caps the bank’s ratings at their current levels.

Fitch has 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’s credit 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 views a further currency adjustment as highly likely.


BM’s IDRs are driven by its standalone strength, as captured by its VR of ‘b-‘. The VR reflects the strong linkage between BM’s credit profile and that of the Egyptian sovereign, given the bank’s sizeable exposure to the Egyptian sovereign. It also considers the bank’s resilient asset-quality metrics, good profitability through the cycle and a stable funding base, underpinned by its leading franchise and strong links with the Egyptian sovereign. However, it also reflects the bank’s weak core capitalisation and pressures on foreign-currency (FC) liquidity.

Weaker Operating Conditions: Economic conditions for Egyptian banks will remain weak, given high inflation, rising input costs, geopolitical uncertainties and lingering pressures on the currency. The banking sector recorded a high net foreign liability position of USD16.4 billion at end-3Q23, reflecting tight FC liquidity.

Strong Franchise: BM is the second-largest fully government-owned Egyptian bank, accounting for 19% of total sector assets at end-1Q23. It has the largest branch network in the country, with more than 13 million customers.

High Exposure to Sovereign: Sovereign securities comprised 31% of total assets at end-1Q23. BM’s lending is also highly skewed towards the government and public sector, which together represented 50% of total loans at end-1Q23. Placements with the Central Bank of Egypt were around 22% of total assets. Total exposure to the Egyptian sovereign was 69% of total assets or around 11x the bank’s equity at end-1Q23.

Healthy Asset Quality: Loans comprised 32% of total assets at end-1Q23. BM’s fairly low Stage 3 (2.6%) and Stage 2 loans ratios (6.3%) reflect high government-related lending. The stock of stage 2 loans has increased strongly since end-2021, reflecting currency depreciation and weaker economic conditions. Stage 3 loans are 127% covered by total loss allowances.

Volatile Profitability: Fitch’s core profitability metric, operating profit/total risk-weighted assets (RWAs), rose to 4.8% in 1Q23 from 3.5% in 2022 supported by a strong in net interest income on the back of higher rates. We expect the positive trend in profitability to continue throughout 2023 and 2024 supported by strong asset growth and rising interest rates.

Weak Core Capitalisation: We have revised the outlook on BM’s capitalisation and leverage score to negative from stable, reflecting the bank’s low common equity tier 1 (CET1) ratio (6.3% at end-2022) and equity-to-assets ratio (6.6%) amid rising sovereign risks. We expect the bank’s CET1 ratio to improve by end-2024 on the back of slower growth in RWAs and better internal capital generation, but it will remain below large private-sector peers.

Net Foreign Liability Position: BM has a good funding profile supported by its dominant franchise, particularly in the retail segment, which accounted for over 63% of total deposits at end-1Q23. BM’s FC liquidity weakened at end-1Q23 as FC shortages intensified but FC liquidity coverage remained reasonable. Interbank placements with foreign banks covered 42% of short-term loans and interbank borrowings from foreign banks. We believe the bank’s net foreign liability position widened year-to-date in line with the sector. However, we estimate that over 50% of the bank’s foreign liabilities were long term at end-1Q23, mitigating refinancing risks.


Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A downgrade of Egypt’s sovereign rating would lead to a downgrade of BM’s ratings, given the bank’s very high sovereign exposure.

A sharp deterioration in operating conditions resulting in increased pressure on the bank’s asset quality and subsequently profitability, could lead to downgrades. The ratings could also be downgraded if there was a sharp deterioration in the bank’s CET1 ratio or if intensifying FC liquidity pressures affects the bank’s ability to service its FC obligations.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade of the bank’s ratings would require an upgrade of Egypt’s sovereign rating.

BM’s GSR of ‘no support’ reflects the sovereign’s weak ability to provide support to the bank in FC given weak and vulnerable external positions. This considers the sovereign’s large gross external financing requirements, which are expected to reach 91% of FC reserves in FY24 and the banking sector’s large net foreign liability position, representing almost 50% of FC reserves.

An upgrade of the GSR would require an upgrade of the sovereign rating.


The business profile score of ‘b-‘ is below the ‘bb’ category implied score due to the following adjustment reason: business model (negative).

The funding and liquidity score of ‘b-‘ is below the ‘bb’ category implied score due to the following adjustment reason: deposit structure (negative).


The principal sources of information used in the analysis are described in the Applicable Criteria.


BM has an ESG Relevance Score of ‘4’ for governance structure, reflecting, in Fitch’s view, the Egyptian government’s influence on its strategy and business activities, especially through the issuance of high-yielding CDs in 2016, 2020, 2022 and 1Q23. This has a negative impact on the credit profile by affecting the bank’s cost of funding and net interest margins and is relevant to the rating in conjunction with other factors.

The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision.

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