(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, today announced that it has lowered both the long-term foreign currency rating and the financial strength rating of Saudi Arabias Bank Al Jazira (BAJ) from A- to BBB. The short-term foreign currency rating of A2 is unchanged, as is the support rating of 2. A Negative outlook has been assigned to the financial strength rating, while the outlook for the foreign currency ratings remains Stable.
BAJ is the second-smallest bank in the Saudi Arabian banking sector. A fully Sharia-compliant bank since 2007, BAJ has spent the better part of the past decade building a franchise centred on meeting the financial needs of high net-worth customers, thereby developing an expertise in stock brokerage, asset management and the financing of share trading activity. The bank has undergone some fundamental changes since the market correction of 2006, including a widespread turnover in top and middle management.
Over the past two years BAJ has suffered from that market correction, in terms more of profitability than of asset quality. At the same time, loan growth has been rapid; the banks previously very strong capital and liquidity positions have deteriorated, but remain better than those of its peers. While asset quality remains sound, the prospects of its remaining so are clouded by the high degree of obligor concentration and by the slowing economy in general. Most importantly, the bank faces the likelihood of write-offs and/or workouts relative to troubled Saudi corporates sometime soon.
The banks new management has developed a new strategy, which is being implemented this year. That strategy includes building on its current customer base and marketing new products (such as Islamic life insurance) to that base. In addition, BAJ plans to expand its marketing efforts to include
large corporates and SMEs and to greatly expand its branch network. Because of its still sound liquidity and capital positions, the bank is in a position to wait that strategy to bear fruit.
The banks net profit declined in 2008 (as did that of half the Saudi banks), but its decline was the sectors steepest, as was the decline in its operating profit. Spurred by improvements in non-special commission income and cost-cutting, the rate of the decline was stemmed considerably in the first half of 2009, but both figures were down from those of the previous year.
BAJ was established in 1976 as an affiliate of the National Bank of Pakistan, which still holds a stake in the bank. The current principal shareholders are Rashed Abdul Rahman Al Rashed & Sons Co and the Asir Company, which is majority-owned by Saleh Kamel.
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