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S&P publishes latest banking industry country risk assessment on Egypt

August 4, 2014

Standard & Poor's Ratings Services today 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'.

"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'.


External financial support provides leeway to address short-term challenges.

Resilient economy and banking system.

Low private sector indebtedness and growing core customer deposit base.


Very high exposure to low-rated domestic sovereign debt.

Persistence of political tensions, low wealth, and large informal economy.

Small bankable population and large number of banks.

Ongoing modernization and limited overall transparency.

"Economic risks in Egypt remain extremely high in a global context. 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 per cent in 2015, compared with a low point of 1.8 per cent in 2011 when the popular uprising began, and an average of 6 per cent between 2007 and 2010 .

"We base our industry risk score for Egypt on our assessment of the institutional framework, competitive dynamics, and system wide 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.

"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."

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Source: CPI Financial

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