Arab International Bank's Ratings Affirmed Ratings remain on 'Negative' Outlook
(MENAFN Press) 18th September 2013
Arab International Bank's Ratings Affirmed; Ratings remain on 'Negative' Outlook
Capital Intelligence (CI), the international credit rating agency, has today announced that Arab International Bank (AIB)'s Long and Short-Term Foreign Currency (FC) Ratings are affirmed at 'B-' and 'B', respectively. These ratings, which are set at the same level as CI's sovereign ratings for Egypt, denote significant credit risk, as the Bank's capacity for timely fulfillment of financial obligations is very vulnerable to adverse changes in internal or external circumstances. The Support Level is affirmed at '3', based on the expectation that there is a high likelihood of shareholder support in case of need.
At the same time, the Financial Strength Rating (FSR) is maintained at 'BB', based on the Bank's more than full coverage for non-performing loans (NPLs), high capital to total assets ratio, and improved funding concentration risk. The FSR is constrained by sovereign risk factors, tighter liquidity, borrower concentrations and earnings volatility. As is the case with the other Egyptian banks, the Outlook for all the ratings remains 'Negative', reflecting the Outlook for CI's sovereign rating for Egypt. A downgrade of Egypt's sovereign ratings would immediately follow with a lowering of AIB's ratings. Although the Bank has maintained relatively sound financial credit metrics, these are outweighed by heightened sovereign risk factors related to a balance of payments and/or currency crisis and ongoing political instability.
Notwithstanding the declared financial support for Egypt from Gulf Cooperation Council (GCC) countries following the recent developments, the political landscape is likely to continue to worsen in the near term - pushing up the cost of risk for banks as the economy comes under ever increasing pressure. In the past, AIB had tended to benefit from economic crises due to its special charter and its minimal exposure to the Egyptian economy. However, following a change in business strategy (in 2010), the Bank's exposure to the Egyptian market increased significantly.
Asset quality remains relatively stable, with more than full coverage of NPLs underscoring effective risk management. However, prolonged difficult economic conditions are likely to produce a higher NPL accretion rate and increased provision charges. Although AIB remains exposed to borrower concentration risk, customer deposit concentrations improved noticeably after the withdrawal of a single large deposit. Conversely, due to this large deposit withdrawal, the Bank's liquidity tightened markedly despite moderate credit expansion. That said, AIB's liquidity ratios remain satisfactory, albeit tighter than the peer group average.
The balance sheet remained satisfactorily capitalized despite the decline in the capital adequacy ratio in H1 2013. The ratio of total capital to total assets remained the highest among peer banks.
AIB has continued to make good progress increasing net interest income, aided by an improving net interest margin. However, non-interest income continued to decline due to a securities loss. Profitability remains low at both operating and net levels, underscoring limited gross income generation. AIB is currently more dependent on the Egyptian economy for its earnings than was the case in the past given its increased loan exposure to the market.
AIB was established under international treaty by five Arab sovereigns in 1974 as an Egypt-based offshore banking unit. The major shareholders (>10%) are: Arab Republic of Egypt, Libya and Abu Dhabi Investment Authority. AIB operates along the lines of a wholesale bank and its operations were until recently transacted exclusively in foreign currency. In a significant development in 2012, following Central Bank of Egypt (CBE) approval, AIB's charter was amended at an extraordinary shareholders' meeting. Under the amendment, AIB is permitted to operate in all currencies - including Egyptian Pounds starting in 2013. Accordingly, AIB will be subject to CBE banking regulations. In response to these events, AIB's board has established a 'Strategy Formulation Committee' to develop the Bank's new business strategy and business model. As at end-June 2013, the Bank's total assets amounted to USD3.1 billion and total shareholders' equity was USD738mn.
Senior Credit Analyst
Tel: 357 2534 2300
Senior Credit Analyst
Rating Committee Chairman
Senior Credit Analyst
The information sources used to prepare the credit ratings are the rated entity and public information. Capital Intelligence had access to the accounts and other relevant internal documents of the issuer for the purpose of the rating and considers the quality of information available on the issuer to be satisfactory for the purposes of assigning and maintaining credit ratings. Capital Intelligence does not audit or independently verify information received during the rating process.
The rating has been disclosed to the rated entity and was released without amendment following that disclosure Ratings on the issuer were first released in October 1991. The ratings were last updated in August 2013.
The principal methodology used in determining the ratings is Bank Rating Methodology. The methodology and the meaning of each rating category and definition of default, as well as information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com.
About Capital Intelligence (Cyprus) Ltd
Capital Intelligence (CI) has been providing credit analysis and ratings since 1985, and now rates over 400 Banks, Corporates and Financial Instruments (Bonds & Sukuk) in 39 countries. A specialist in emerging markets, CI's geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, South-East Asia, the Far East, and North and South Africa.In May 2012, CI registered as a credit rating agency in accordance with Regulation (EC) No. 1060/2009 of the European Parliament and of the Council on credit rating agencies.
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