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Moody's Downgrades Ratings of 5 Egyptian Banks

An Egyptian walks in front of a closed currency exchange office as banks, schools and the stock market remained closed for the second working day in Cairo, Egypt, January 31, 2011

U.S. ratings agency Moody's has downgraded the ratings of five Egyptian banks due to ongoing unrest in that nation, a move that could hurt the ability of those banks to borrow money.

Moody's said the downgrades resulted from a reassessment of Egypt's capacity to support its banking system, following the agency's lowering Monday of the government's debt rating.

Moody's said Wednesday it cut the local deposit ratings of four Egyptian banks by two notches. The lenders include Bank of Alexandria, Banque Misr, Commercial International Bank, and National Bank of Egypt. The agency also cut the local deposit rating of Banque du Caire by one notch.

It says the new ratings of all five banks remain under review for possible further downgrade.

Moody's said the current political uncertainty in Egypt may "negatively impact foreign direct investment flows" into the country and "disrupt economic activity." It also warned of a possible weakening in Egypt's main economic sectors, including tourism, exports, textiles, real estate and construction.

Moody's predicted that a worsening economic environment will hurt Egyptian banks' loan portfolios, forcing them to raise their bad loan provisioning and damaging their profitability.

Some information for this report was provided by AP.