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
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
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