Fitch Ratings announced in a statement that the operating environment in Egypt’s banking sector still faces challenges. However, it noted that profitability is on the horizon as a credit strength for Egyptian banks.
The agency explained the downgrading of the banking sector’s operating environment “considering the banks’ significant exposure to the sovereign, which we estimate to be almost 50 percent of the banking sector’s total assets.”
Reducing the rating of 4 banks
Fitch downgraded the operating environment score of four of Egypt’s banks ‘B-’/stable from ‘B’/negative. The four banks include the National Bank of Egypt and Banque Misr, which are the two largest government banks in Egypt. They also include the Commercial International Bank (Egypt), the largest private bank in the country, and Banque du Caire.
Egypt is suffering from dollar liquidity to meet its needs, after COVID-19 and the war in Ukraine. It has postponed two program reviews that the government signed with the International Monetary Fund (IMF) in December. That is to obtain a loan worth $3 billion, from which it obtained one part only.
Notably, in November, Fitch lowered the long-term repayment risk rating of the four banks in Egypt with a stable outlook. This comes after the agency lowered, Egypt’s ability to meet long-term obligations rating in foreign currency to B- from B.
IMF considers increasing funding to Egypt
Earlier, IMF Managing Director, Kristalina Georgieva, said, “The fund is seriously considering a possible increase in the loan provided to Egypt to finance its economic reform program worth $3 billion.”
This came during press statements on the sidelines of the Asia Pacific Economic Cooperation Summit (APEC). Georgieva attributed increasing the loans to the economic difficulties imposed by the Israel-Hamas war.
Read: IMF could increase loans to Egypt
Economic reform program
Egypt has been working with the IMF to implement a 46-month economic reform program since last December. The program is worth $3 billion to be paid periodically, of which Egypt disbursed about $350 million.
The Fund is postponing the second and third allocations of the loan, totaling about $700 million. That is due to the delay in implementing some reform measures, especially with regard to the exchange rate policy.
Reports had previously revealed that the European Union (EU) is trying to accelerate efforts aimed at intensifying its relationship with Egypt. The EU aims to help the country address the growing repercussions resulting from the war in the Gaza Strip.
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