PARIS: Economic risks in Egypt remain extremely high in a global context, according to S&P Ratings Services.
Standard & Poor’s Ratings Services on Tuesday published its “Banking Industry Country Risk Assessment: Egypt.”
“We classify the banking sector of Egypt in BICRA group ’10’ along with
Belarus, Greece, Jamaica and Ukraine under our Banking Industry Country Risk
Assessment (BICRA) methodology, other relevant peers include Argentina,
Kazakhstan, Lebanon, Nigeria, and Tunisia in Group ‘8,” S&P in a statement said.
“Our bank criteria use our BICRA economic risk and industry risk scores to
determine a bank’s anchor, the starting point in assigning an issuer credit
rating. The anchor for banks operating only in Egypt is ‘b’.
“We view Egypt’s “economic risk” trend as stable, at the highest risk level. Political tensions will constrain economic growth and maintain elevated credit risk for banks during the next 18 to 24 months.
“We view the “industry risk” trend in Egypt as negative. Retail customer
deposits are the main source of funding for banks. We believe that additional
pressures on already weak sovereign creditworthiness could expose banks to a
shift in business confidence, and consequently to elevated refinancing risks.”
“Our assessment primarily reflects the banks’ key role in financing low-rated
domestic government debt. Political and social tensions are likely to remain
at elevated levels over the medium term, putting strain on already weak
economic growth prospects. We project that real GDP per capita growth will
gradually recover to around 3.5% in 2015, compared with a low point of 1.8% in 2011 when the popular uprising began, and an average of 6% between 2007 and
2010,” it added.
“We base our industry risk score for Egypt on our assessment of the institutional framework, competitive dynamics, and systemwide funding. The key factors are the gradual convergence towards international standards, dominance of government-owned banks and tail risk relating to retail depositors
confidence in banks. Despite recent improvements and a clear commitment from the authorities to reform the banking sector, this is still a work in
progress. We also consider it highly likely that political uncertainties and
the economic slowdown will delay the full implementation of the initial reform
program, from the privatization of some state-owned banks to improved
transparency. During the political transition, we do not exclude the
possibility that regulations might be relaxed, meaning we could even see cases of regulatory forbearance.”