CAIRO: Moody’s Investors Service downgraded the ratings for five Egyptian banks while Standard & Poor’s lowered its assessment on two of the institutions, in the latest volley of bad news for the economy of a nation mired in violent protests.
Egypt’s government, meanwhile, moved to ensure that food supplies were adequate and reaching the market as complaints mounted that the business closures stemming from more than a week of protests could lead to food shortages.
Moody’s cuts come just two days after it lowered Egypt’s sovereign rating, citing the unrest that has gripped the Arab world’s most populous nation. It warned that the ratings for the five lenders — Banque Misr, NBE, Commercial International Bank, Bank of Alexandria and Banque Du Caire — remain on review for possible additional downgrade. Analysts have grown increasingly concerned of a spillover effect, worried that the chaos will begin to affect other countries in the oil-rich Mideast.
Both international ratings agencies cited the political turmoil in Egypt and its potential impact on the country’s economy, raising concerns that included a possible liquidity squeeze and government’s ability to support the banking sector.
Moody’s said the downgrade of the local currency deposit ratings of the banks was "mainly driven by our reassessment of the country’s capacity to support its banking system, following the lowering of the government’s ratings."
It said it was concerned that the current political uncertainty, if not resolved, "could negatively impact foreign direct investment flows into the country and disrupt economic activity, thereby weakening the performance of the main economic sectors."
The five banks affected by Moody’s cuts were the National Bank of Egypt, Banque Misr, Banque Du Caire, Commercial International Bank and Bank of Alexandria.
Business has been sharply disrupted in Egypt as the protests have dragged on. Tourists are fleeing in droves, many factories have suspended production and the national carrier EgyptAir is flying only about 25 percent of its scheduled flights.
Banks have been closed since Jan. 28, as has the country’s stock exchange which saw its benchmark index fall about 17 percent in the span of two days before the weekend. It remains unclear when the exchange or the banks will reopen.
Houston, Texas-based drilling contractor Atwood Oceanic said that it was informed by Germany’s RWE Dea Nile GmbH that the German utility firm was declaring force majeure affecting its operations offshore Egypt in the Mediterranean.
"We have secured the well and are in the process of halting offshore operations," Atwood said in a statement on its Web site.
While oil companies have largely said their production was continuing unaffected in the country, crews are not being flown in, which means that exploration work could be affected.
The protests, which degenerated into violence Wednesday with clashes between pro-government crowds and anti-government protesters, have disrupted daily life across Egypt, forcing company closures and leading to long bread lines.
Customs officials on Wednesday released 100 tons of meat, fish and canned goods that had been held up at the airport because of duties.
Hamdy El-Qady, a Finance Ministry official, said the shipments were released as part of the "national effort to … make goods available."
A day earlier, Sameer Radwan, the new finance minister, issued orders that essential goods be released from customs and said the government would provide unemployment compensation for those who were unable to go to work because of the protests. In addition, a roughly $690 million fund would be set up to compensate businesses that sustained damage during the protests.
Social Solidarity Minister Ali Moselhi, meanwhile, was quoted in Egyptian newspapers as saying that Egypt had enough wheat reserves for 150 days and that the country’s 24,000 bakeries were working at full capacity. Analysts have voiced increasing concerns about a possible food crisis in the country.
The steps were clearly aimed at appeasing Egyptians who have grown increasingly frustrated with the disruptions, and are starting to feel a financial pinch from the protests.
But investors also had broader concerns, and the ratings cuts reflected the bevy of questions that remain unanswered as the violence raged and Mubarak refused to accede to demands to step down.
Moody’s cut NBE, Banque Misr, Commercial International Bank and Bank of Alexandria’s local deposit ratings two notches, to Ba1/NP, while Banque du Caire’s LDR was lowered one notch to Ba1/NP. The cuts are all to levels well below prime.
Meanwhile, S&P, which had yesterday lowered Egypt’s long-term foreign currency sovereign rating to BB from BB+, cut the ratings for the National Bank of Egypt and the Commercial International Bank to BB, from BB+. It said its cuts reflected the worries about the ongoing political instability and the risk the unrest would affect liquidity in the banking sector.
In addition, there were worries that the weakening of Egypt’s creditworthiness could affect the government’s ability to provide support, if needed, for government-related entities such as NBE.
"The ratings on NBE … reflect our opinion of the bank’s poor asset quality, very weak capitalization, and risky operating environment," S&P said.