Dagong and IIRA maintain the Ratings of Al Baraka Banking Group

19/10/2017 13:49 AST

Dagong Global Credit Rating Company Limited ("Dagong") and Islamic International Rating Agency ("IIRA") have jointly maintained foreign and local currency ratings assigned to AlBaraka Banking Group ("ABG" or "the Group") on the international scale at BBB+/A3 (Triple B Plus / A Three).

At the same time, IIRA has re-affirmed the national scale ratings of ABG at A+(bh)/A2(bh) (Single A Plus / A Two). Outlook on the assigned ratings has been revised to 'stable' from 'negative' indicating our view of relative macroeconomic and political stability in ABG's core countries of operations as against the previous year which is expected to sustain over the medium-term.

The Kingdom of Bahrain based wholesale Islamic bank ABG operates through a globally diversified franchise of Islamic retail and corporate banks spread across 11 jurisdictions in Europe, Africa and Asia with the Group's exposure remaining predominant in Turkey, Jordan, Egypt and Algeria. The risk of economic downturn in any of these countries in terms of its potential impact on ABG's growth and profitability is expected to be buffered given the low-to-moderate degree of correlation within these regions. At the same time, the political situation in these countries is expected to gradually transition to stability despite the presently looming geopolitical risks. Further in our view, while the pressure on the banking system prevails in ABG's core countries, the adaptive and stringent regulatory set-up would continue to lend overall stability to the financial system in the respective jurisdictions.

ABG's ratings derive strength from the meaningful improvement in capitalisation with the recent tier 1 Sukuk issuance this year. Likewise, the Group's solvency and liquidity remain stable and its overall wealth creation ability remains relatively strong benefiting from its diversified presence and competitive edge that support the Group's long-term stability.

While ABG's overall risk profile currently remains sound, its asset quality showcases deterioration on a timeline vis-à-vis the historical three year levels, most notably with pressure developing in Turkey and Egypt due to rising non-performance. The Group is undertaking certain comprehensive measures across its subsidiaries that we expect would help further strengthening its overall risk management systems in the coming quarters. Nonetheless, we would continue to monitor the impairment trends closely in the light of evidently increasing credit risk.

IIRA's assessment of ABG's overall fiduciary score falls in the range of '76-80', reflecting strong fiduciary standards with a well-developed and mature corporate governance framework that balances the representation and protection of its stakeholders. While the Group's subsidiaries are individually governed by their respective banking supervisors and local regulatory authorities, the Group maintains close coordination and oversight of subsidiary control functions. Further, ABG benefits from the strong yet evolving institutional framework for Islamic banks in Bahrain that ensures adherence to a strong framework for Shari'ah governance.

CP Financial