Bank of Alexandria's ratings and 'negative' outlook affirmed

The Bank's Financial Strength Rating (FSR) was affirmed at 'BBB-'. Despite the increase in non-performing loans (NPLs), BoA has satisfactory loan-loss reserve coverage and sound risk management to address the effects of the current sharp economic slowdown. Capital buffers are more than adequate and benefit from an acceptable rate of internal capital generation. BoA enjoys good liquidity thanks to its broad customer deposit base - and this has proved resilient following the January 2011 political revolution. Profitability, although significantly reduced by higher operating costs and provisions in 2011, is expected to withstand the effects of the economic slowdown including possible new risk charges.

The major ratings constraining factors are indeed the sovereign risks related to a potential balance of payments and / or currency crisis, although both are mitigated by the Bank's good liquidity and capital adequacy. In view of potential constraints arising from difficulties in the Eurozone and specifically Italian capital markets on the capacity of the parent Intesa Sanpaolo Group (ISP) to provide liquidity and equity support to BoA if needed, the Support Level is lowered to '3' (from '2'). Support from Central Bank of Egypt in case of need is expected to be forthcoming. As is the case with other Egyptian banks, the Outlook for all BoA's ratings remains 'Negative', reflecting the Outlook for Egypt's Sovereign Ratings. A downgrade of Egypt's sovereign ratings would immediately follow with a lowering of BoA's ratings.

While Egypt has entered a period of marked institutional change and development which could have beneficial economic and social effects over the longer term, ongoing political and economic risk factors will continue to weigh negatively on the operating environment's near to medium-term prospects. In the face of difficult operating conditions, BoA continues to effectively monitor risk exposures and is increasingly following a cautious lending policy. Importantly the Bank is addressing these ongoing challenges from a position of relative strength.

BoA operates in both the retail and corporate segments of the local market, in competition with rival banks such as Commercial International Bank and National Societe Generale Bank. Since acquisition by ISP in 2006 of a majority stake in BoA, the Bank has concentrated on "core" commercial banking business. The focus of BoA's strategy has been to expand its retail presence and this has led to an increased share of high margin retail lending in the portfolio. Retail deposits contributed more than three-fourths of total customer deposits. As at end 2011, the Bank's total assets amounted to EGP37.8bn ($6.3bn) and total capital was EGP3.7bn ($615m).