Fitch Ratings has announced the upgrade of four major Egyptian banks following the recent improvement in Egypt’s sovereign credit rating. The National Bank of Egypt (NBE), Banque Misr (BM), Commercial International Bank (CIB), and Banque du Caire (BDC) have all seen their Long-Term Issuer Default Ratings (IDRs) raised to ‘B’/Stable from ‘B’/Positive.

The upgrade reflect the strong link between the banks’ creditworthiness and Egypt’s sovereign rating, given their significant exposure to sovereign assets, which accounted for 53% of the sector’s total assets at the end of 2023, equivalent to approximately 8.3 times equity.

Fitch cited that the upgrade comes in the wake of improved operating conditions in Egypt’s banking sector. Foreign currency liquidity has shown marked improvement compared to 2023, supported by strong capital inflows, including nearly $17 billion from non-resident investments in treasury bills, remittances, and proceeds from the Ras Al Hekma deal.

The sector’s net foreign assets deficit has narrowed significantly, dropping to $130 million by September 2024, down from $17.6 billion in January. In light of these developments, Fitch upgraded the operating environment score for Egyptian banks to ‘b’/Stable from ‘b-’/Positive, signalling optimism for continued macroeconomic stability.

The outlook for the Egyptian banking sector appears stable, with real GDP growth projected to accelerate from 2.4% in 2023 to 4.2% in 2025 and 5.4% in 2026. Inflation is forecast to decline significantly, dropping from 26.5% in October 2024 to 12.5% by mid-2025, further bolstering confidence in the operating environment. Fitch’s upgrades underline the improving financial stability in Egypt and the central role of its banks in supporting economic recovery and development.

Asset quality and risk profile scores for the banks were also upgraded to ‘b’/Stable, reflecting the manageable risks associated with sovereign exposure and a loan-to-asset ratio of 37% as of May 2024. Meanwhile, the banks’ funding and liquidity scores were improved in line with the overall operating environment, signaling strengthened external balances and increased foreign inflows. Fitch expects the banking sector to achieve a net positive foreign assets position by 2025 and 2026, driven by reduced current account deficits, international financing, and a more flexible foreign exchange regime.