TEXT-Fitch affirms Commercial International Bank at 'B+'
Dec 10 - Fitch Ratings has affirmed Commercial International Bank's (CIB) Long-term Issuer Default Rating (IDR) at 'B+' and Viability Rating (VR) at 'b+'. The Outlook on the Long-term IDR is Negative. A full list of rating actions is at the end of this commentary. RATING DRIVERS AND SENSITIVITIES: IDRs, VR and NATIONAL RATINGS CIB's IDRs, VR and National Ratings reflect the strength of its franchise in Egypt, the experience of its management, its consistently strong profitability, and its sound asset quality, liquidity and capitalisation. However, they also take into account the difficult operating environment, the political uncertainty following the 'Arab Spring' and the inherent weaknesses in the Egyptian economy. CIB's Long-term IDR is in line with Egypt's Long-term IDR of 'B+'. The Negative Outlook reflects the Negative Outlook on the sovereign ratings. Any change in the sovereign ratings or Outlook would have an impact (positive or negative) on the bank's IDRs. CIB's VR is effectively capped by the bank's high exposure to the domestic economic environment and significant holdings of Egyptian sovereign debt. Further growth in the bank's franchise, while maintaining its sound asset quality, liquidity and capitalisation, would be positive for the VR. A multi-notch downgrade of the sovereign ratings would probably have a negative impact on the bank's VR. The Outlook on the National Long-term Rating has been revised to Stable from Negative, reflecting Fitch's view that CIB's National Ratings are unlikely to change relative to other banks in Egypt, even if there was any deterioration in the operating environment. Despite the difficult operating environment, CIB has continued to grow its market share and it managed to increase its net income by 53.9% yoy in 9M12, driven by a substantial increase in revenues, while costs were contained. Impairment charges increased in 9M12 to maintain loan loss reserve coverage, but nevertheless only represented 15.2% of pre-impairment operating profit. CIB focuses primarily on lower-risk larger Egyptian corporates and multinationals operating in Egypt, although the bank is also expanding its presence in the retail and SME sectors. At end-9M12, impaired loans stood at 3.4% of total loans (end-2011: 2.9%), with reserve coverage at 117%. There is significant concentration by borrower, although the loan book is well-diversified by industry sector. CIB is almost entirely funded by historically stable customer deposits, of which more than half are now retail, with a loans/customer deposits ratio of 53% at end-9M12. There is very limited interbank and medium-term funding, and the bank is a significant placer of deposits in the interbank market. At end-9M12, the bank's net loans only represented 43% of total assets, while the bank held substantial liquid assets in the form of interbank deposits and investment securities. Egyptian sovereign debt represented around 36% of total assets at end-9M12. At end-9M12, CIB had a Fitch core capital ratio of 17.8% (Tier 1 regulatory capital ratio of 15.0%). Fitch considers this ample at present, despite the operating environment, considering recent modest loan growth. Further capital may be required if loan growth accelerates. RATING DRIVERS AND SENSITIVITIES: SUPPORT RATING and SUPPORT RATING FLOOR Fitch believes that there is a limited probability of support from the Egyptian authorities, as reflected in the Support Rating and Support Rating Floor, considering Egypt's sovereign Long-term IDR of 'B+'. This is despite the bank's systemic importance, as the leading private sector bank in Egypt, and Fitch's view of the sovereign's propensity to support the domestic banking system. The rating actions are as follows: Long-term IDR affirmed at 'B+'; Outlook Negative Short-term IDR affirmed at 'B' National Long-term Rating affirmed at 'AA(egy)'; Outlook revised to Stable from Negative National Short-term Rating affirmed at 'F1+(egy)' Viability Rating affirmed at 'b+' Support Rating affirmed at '4' Support Rating Floor affirmed at 'B' Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria