Fitch Ratings has affirmed Credit Agricole Indosuez Egypt's National Long- and Short-term ratings at AA and F1+, respectively. At the same time, the agency has also affirmed the bank's Support rating at 3.
The ratings for Credit Agricole Indosuez Egypt reflect the support from its new parent, Credit Agricole Indosuez (CAI), which acquired 72.6 percent of the bank in June 2001. Fitch considers that CAI has a high propensity to provide support to the bank in time of need, although this may in certain circumstances be constrained by the transfer risk attached to Egypt.
The bank is undergoing a restructuring exercise in response to the difficult operating environment. It is strengthening its risk management business, among others, through integrating its operations with CAI, and addressing its asset quality problem by recognizing and provisioning for bad loans. Profitability in the past four years has been under pressure due to lower loan volumes, continuing pressure on interest margins and large loan loss provisions stemming from a more prudent provisioning policy under new management.
Lending growth has been low due to the bank's focus on addressing asset quality concerns. Future growth will increasingly be targeted at large corporate, multinational and export-oriented firms. Reclassification of problem loan accounts in 2001 resulted in a large increase in non-performing loans to 17.6 percent of total loans in 2002 from 8.4 percent in 2000. Loan loss reserves coverage also increased to 95 percent in 2002 from 84.3 percent in 2001.
Ongoing loan loss provisions are likely given the weak domestic economy. A capital adequacy ratio of 17.9 percent at end-2002 is adequate, but this is likely to fall as the bank expands its loan portfolio and seeks to lift shareholder return on equity.
Fitch's Individual ratings assess how a bank would be viewed if it were entirely independent and could not rely on external support. Its Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. These ratings are not debt ratings but rather, respectively, an assessment of the intrinsic strength of a bank and of any level of outside support that may, or may not, be available to it.
Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. National ratings are designed for use mainly by local investors; therefore specific letter grades are not internationally comparable. — (menareport.com)
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