Moody’s assigns Counterparty Risk Assessments to five Egyptian banks

Cairo, Egypt (Capital Markets in Africa):- Moody’s Investors Service has today assigned Counterparty Risk Assessments (CR Assessments) to five Egyptian banks. It has assigned CR Assessments of B3(cr) to the government-owned National Bank of Egypt SAE, Banque Du Caire SAE, and Banque Misr SAE; B2(cr) to Commercial International Bank (Egypt) SAE (CIB); and B1(cr) to Bank of Alexandria SAE (Alex Bank). Concurrently Not-Prime (cr) short-term CR Assessments have been assigned to all the banks.

This announcement follows the publication of the rating agency’s new bank rating methodology (see “Rating Methodology: Banks” published on 16 March 2015).

RATINGS RATIONALE
CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than the likelihood of default and the expected financial loss suffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank’s covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

In most cases, the starting point for the CR Assessment — which is an assessment of the ability to avoid defaulting on its operating obligations — is one notch above the bank’s adjusted baseline credit assessment (BCA), which represents the rating agency’s view of the probability of a bank failing on its obligations without considering government support. Moody’s then adds the same likelihood of support uplift as applied to deposit ratings. However, in the case of the government-owned Egyptian banks their CR Assessments, which are already at the B3 government bond rating level before incorporating government support, do not benefit from the additional one notch of government support that the rating agency imputes in their deposit ratings.

As a result, the CR Assessment of B2(cr) for CIB and B1 (cr) for Alex Bank are one notch higher than their deposit ratings which do not benefit from government support, while the CR Assessments of B3 (cr) for the government-owned banks are aligned with their deposit ratings.