Egypt’s banking system faces bleak times because of the political turmoil, ratings agency Moody’s has reported.
The agency re-assessed its outlook on Egypt’s banking system on Tuesday, lowering its rating from "stable" to "negative."
It forecast Egypt’s economic growth to drop by about 2 percent in the next 12 to 18 months due to political and economic instability after the unrest that toppled Hosni Mubarak from the Egyptian presidency. Moody’s said Egypt’s growing exposure to lower-rated sovereign debt, an expected decline in tourism, and in foreign direct investment, incoming fund flows and private consumption would trigger the slump.
"These adverse economic conditions are likely to challenge the banking system’s asset quality and business prospects as well as its profitability and internal capital-generation capacity," a statement from Moody’s said.
Hisham Ramez, deputy governor of the Central Bank of Egypt, told Al Arabiya television, that the central bank has taken a more positive view on the situation.
"I don’t agree that there are any negative expectations for the banking sector," Mr. Ramez said. "Our view of the banking sector is very positive, and its position is very stable and strong."
The central bank said on Monday it had ordered the country’s lenders to carry out stress tests on their loan portfolios. It also said it would let borrowers postpone debt repayments in the wake of the political upheaval.
Egypt, with an estimated population of 82 million, has an annual GDP of $500 billion and a GDP percapita of $6,200. In 2010, its public debt stood at 80.5 percent of its GDP.
In March, Moody’s downgraded five Egyptian banks and assigned them a negative outlook. The five banks were the National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank and Bank of Alexandria.