The local-currency (LC) deposit ratings were also downgraded by two notches to Ba3 from Ba1 for the three state-owned banks (i) National Bank of Egypt; (ii) Banque Misr; and (iii) Banque du Caire, and by one notch to Ba2 from Ba1 for Commercial International Bank.

The LC deposit rating of Bank of Alexandria was confirmed at Ba1, reflecting parental support from Bank Intesa Sanpaolo (Aa2/P-1/B-).

Concurrently, Moody’s has assigned negative outlooks to the ratings of all five banks.

The outlooks reflect Moody’s concerns that the current political situation could negatively affect the economy and the banks’ financial performance beyond what is reflected in its base case scenario.

The downgrade of Egypt’s rating has also had a negative impact on the country’s capacity to support its banking system, causing the repositioning of the country’s systemic support indicator (SSI) to Ba2 from Ba1.

This, however, does not have any direct impact on the banks’ deposit ratings.

These rating actions conclude Moody’s review of these bank ratings — initiated on 2 February 2011 — triggered by the political turmoil in Egypt.

The downgrade of all five rated banks’ long-term FC deposit ratings is due to the downgrade of the country’s FC deposit ceiling to B1 from Ba3.

As a result, all FC deposit ratings are effectively constrained by the corresponding ceiling at B1, which reflects moratorium risks on FC deposits that currently exist in Egypt within the context of declining FC assets held by the Central Bank of Egypt (CBE).

The downgrade of the LC deposit ratings announced today reflects a weakening in the stand-alone credit profile of four rated banks: National Bank of Egypt, Banque Misr, Commercial International Bank and Bank of Alexandria.

The repositioning of their stand-alone Bank Financial Strength Ratings (BFSRs) has been the key rating driver behind the bank LC deposit rating downgrades announced today.

In addition, Moody’s says that the intrinsic financial health of banks in Egypt has weakened as a result of the potential affect of political developments on Egypt’s economic conditions and the negative consequences for their financial position.

Concerns regarding a potential capital flight and pressure on the banks’ liquidity positions have receded as local depositors’ confidence in the local banks has not been impaired.

However, Moody’s notes that liquidity risks have not entirely diminished, because the political situation is still relatively fluid.

Political-event risk remains high in Egypt, constituting a contingent liquidity risk for the local banks.

All rated Egyptian banks’ ratings have been assigned a negative outlook to reflect considerable downside risks to our base case scenario.

Moody’s notes that the current period of political uncertainty in Egypt — and in the wider Middle East and North Africa (MENA) region – has negatively affected foreign direct investment flows into the country and has disrupted economic activity.