Moody’s has downgraded the long-term deposit ratings of five Egyptian banks on the back of its downgrade last week of the country’s sovereign credit rating. The National Bank of Egypt (NBE), Banque Misr, Banque du Caire (BdC) and CIB have all seen their ratings downgraded to B3 from B2, the ratings agency said, while the Bank of Alexandria’s (Alexbank) rating moves to B2 from B1. The baseline credit rating on all five banks was downgraded to B3 from B2. The agency’s outlook on the banks’ deposit ratings was changed to stable from negative.

Why these banks? The sovereign overhang: The agency said the downgrade was the result of last week’s downward adjustment to the country’s credit rating, citing the “high interlinkages between [Egypt’s] weakened creditworthiness and the banks’ balance sheets.” All five banks have high exposure to sovereign debt, ranging between 25%-43% of their total assets — meaning that their standalone credit profiles and ratings are “effectively constrained by the rating of the government,” Moody’s said. Alexbank’s rating remains a notch above the other four banks thanks to support from Italian bank Intesa Sanpaolo, which owns an 80% stake in the bank.

A “weakened operating environment” is also at play: Moody’s predicts that the banks’ performance will come under pressure as “the combination of foreign currency liquidity pressures, high interest rates and inflation will dampen consumer confidence, compromising borrowers' repayment capacity and increasing funding costs for the banks.”

IN CONTEXT- Moody’s last week downgraded Egypt’s credit rating for the first time since 2013 to B3 from B2, due to “reduced external buffers and shock absorption capacity” amid the FX crunch. The agency also changed its outlook to stable from negative.

REMEMBER- BdC is this year set to finally go ahead with its long-awaited IPO, which has been repeatedly delayed for years due to poor market conditions, under the state’s privatization program. Alexbank, in which the state owns the remaining 20% stake not held by Intesa Sanpaolo, was earlier this year said to be part of the Madbouly government’s sale program, but did not appear on the final list of companies included in the rebooted program.