21/11/2017 18:16 AST
Capital Intelligence Ratings (CI) has affirmed the Long- and Short-Term Foreign Currency Ratings (FCRs) of Bank ABC (Arab Banking Corporation, Jordan) at 'BB-' and 'B', respectively on a negative outlook.
Bank ABC's FCRs are constrained by the ratings assigned to the sovereign ('BB-'/'B'/'Negative'), reflecting the Bank's base of operations in Jordan and its relatively high exposure to Jordanian sovereign debt. Accordingly, the Bank's FCRs remain highly correlated with the sovereign's creditworthiness. The Support Rating remains at '2', in view of the Bank's strong ownership and the very high probability of support from the Bahrain based parent bank, Bank ABC, in case of need, as well as the high likelihood of support from the Central Bank of Jordan (CBJ).
The Financial Strength Rating (FSR) is maintained at 'BBB' on a 'Negative' Outlook, supported by the Bank's solid capitalisation, good loan asset quality and sound liquidity despite the recent tightening trend. Bank ABC's consistently better than sector average non-performing loan (NPL) ratio has translated into moderate provision charges over the years. The FSR is constrained by the Bank's small size and relatively limited market share, and the resulting high concentrations in both the loan book and customer deposit base. These factors elevate the credit and liquidity risks of the Bank. Also constraining the FSR is the decline in profitability, pressured by a squeeze in net interest margin (NIM), and relatively low non-interest income (NII) generation. The difficult operating environment due to ongoing high geopolitical risks in the region also weighs on the Bank's FSR.
The 'Negative' Outlook on the ratings for Bank ABC (and all other Jordanian banks) was assigned in June 2017, following a revision in the Outlook for Jordan's sovereign rating. Although Bank ABC has adeptly managed its balance sheet in the face of continued elevated credit and geopolitical risks, CI Ratings notes that in common with other Jordanian banks, Bank ABC's ratings are increasingly pressured by sovereign risk factors, as well as the challenging operating environment. As such, the ratings for Bank ABC and all other Jordanian banks could be lowered if Jordan's FCRs are lowered. For the Outlook on the ratings to revert to 'Stable', there would need to be an improvement in the sovereign risk profile.
Bank ABC's business franchise remains modest in terms of size and market share. The asset base resumed growth in 2016 thanks to higher CBJ balances and some growth in lending but contracted marginally in the first half of the current year. Bank ABC is a prudent and well-managed institution and this has enabled it to weather the economic slowdown in Jordan better than most of its peers. The Bank's overall sound financial profile evidences conservative risk management practises, derived from its parent ABC. Indeed, the Bank boasts superior key financial indicators compared to many of its larger peers, despite the challenging economic conditions.
Bank ABC continues to exhibit sound loan asset quality metrics. The NPLs net accretion rate remained low in 2016 and into H1 2017, while at the same time the Bank maintained full loan loss reserve coverage of NPLs. In conjunction with solid capitalisation, Bank ABC has a good buffer for unforeseen losses in the current weak credit environment.
Despite another minor decline in 2016-reflecting the resumption of total assets growth and low internal capital generation-the Bank's capital adequacy ratio (CAR) remained solid and a key ratings driver. The CAR for the sector stayed very sound at end 2016, notwithstanding the adoption of Basel III methodology in September 2016. Bank ABC's solid capital base provides a strong risk buffer.
CPI Financial
Please wait...
