The ratings agency Standard & Poor\'s yesterday said three of Egypt\'s biggest banks could be in for a downgrade.The news came days after S&P said Egypt\'s long-term debt was on watch for a possible cut as political and economic turmoil in the aftermath of the country\'s revolution took its toll. Commercial International Bank (CIB), the largest private-sector lender in the country, and two of the country\'s largest domestic banks, National Bank of Egypt (NBE) and Banque Misr were placed on credit watch with negative implications because they faced \"significant sovereign risk\" as political tensions escalate, the ratings agency said. The banks hold the highest amount of government debt, which makes their operations in Egypt risky compared with their equity bases and earnings capabilities, the ratings agency said. \"We do not believe that the banks would withstand a scenario in which Egypt defaulted on its obligations,\" said S&P, which cut the long-term ratings on Egypt in February. The government has increasingly turned to domestic banks such as CIB, NBE and Banque Misr to plug its burgeoning deficit of about US$11 billion (Dh40.4bn). It has sold an increasing amount of government bonds and bills and dollar-denominated bonds to domestic banks to support the pound but yields have risen to a decade-high, making it more expensive for the government to sell. Domestic banks are also reaching a limit on how much they can buy. Also tempering optimism is the threat of a sharp devaluation in the currency, which economists say could trigger inflation and boost the cost of Egypt\'s food imports. The Central Bank of Egypt\'s foreign reserves have fallen from $36bn early last year to $15.5bn at the end of last month. Earlier this week, S&P placed Egypt\'s long-term sovereign ratings on CreditWatch negative, citing worries about the transition from the previously deposed authoritarian regime. There is \"at least a 50 per cent likelihood of a downgrade over the next three months\" if political tensions escalate, the agency said. The government\'s \"ongoing ineffectiveness\" in addressing economic, fiscal and external challenges would further weaken Egypt\'s indicators. It would also undermine the willingness of donors and international lending institutions to extend support, the ratings agency said. Egypt has engaged in a long-winded negotiation with the IMF for a $3.2bn loan package, regarded by many economists as a catalyst for further aid to come through. So far, the country has secured only $1.5bn from Saudi Arabia. But even if it gets the IMF loan, Egypt needs to line up at least another $8bn. from the national.