(MENAFN - Arab News) JORDAN Islamic Bank for Finance & Investment (JIB), one of the oldest commercial Islamic banks set up in 1978 and the largest Shariah-compliant bank in Jordan, continues to consolidate its position in the sector in Jordan despite the opening of the Islamic finance market to foreign banks and a rise in problem financings due to the slowdown of the Jordanian economy in 2009 as a result of the impact of the global and regional credit crunch.
Not surprisingly, Capital Intelligence (CI), the international rating agency specializing in the emerging markets, has recently re-affirmed JIB's financial strength rating of BBB- (BBB minus) and long-term and short-term foreign currency ratings of BB and B respectively. CI also assigned a support rating of 3 to JIB and stressed that both the foreign currency and financial strength ratings of the bank are stable.
Earlier this year, Fitch Ratings, one of the top three international rating agencies, assigned a long-term and short-term issuer default and individual ratings of BB- (BB minus), B, and C/D respectively. JIB was also assigned a support rating of 3. The ratings reflected JIB's strong franchise in Islamic banking in Jordan, supported by its good profitability and strong funding base.
Notwithstanding the rise in problem financings, albeit from a relatively low base, stressed Capital Intelligence, "the quality of JIB's Islamic financing portfolio remains sound overall as indicated by the low ratio of non-performing financing facilities and sound provision coverage. While JIB's liquidity continues to decline, the liquidity position remains strong reflecting the significant level of placements with the Central Bank of Jordan."
JIB, which is a member of the Bahrain-incorporated Albaraka Banking Group (ABG), part of the Dallah Albaraka Group of Saudi Arabia, headed by Saleh Kamel, reported a very strong performance in 2008, achieving the highest increase in net income among Jordanian banks. The bank capitalized on the relatively good economic conditions in Jordan in 2008 and also on the increasing demand for Shariah-compliant financial products in the country.
ABG owns a controlling 58.7 percent stake in JIB, with the remaining shares widely held with Jordan's Social Security Corporation owning a 4.18 percent stake and others through a public listing on the Bahrain Stock Exchange and the Nasdaq Dubai. Riyadh-based Saudi Investment Bank started discussions with ABG to acquire a 50 percent stake in ABG via a share swap with ABG's parent, Dallah Albaraka Group. But discussions were canceled in June this year because of the stressed financial market conditions.
According to CI, JIB's stable rating drivers included the good asset quality of the bank despite the rise in problem accounts in the first half of 2009, record net profit in 2008, strong liquidity as is with other Jordanian banks, and a dominant share of Islamic banking assets in Jordan.
Jordanian banks have in general been relatively less affected by the global credit crunch because they invest locally or regionally and their funding source is mostly local deposits, which have remained stable and therefore sustainable to date. JIB's net profit in 2008 increased year-on-year by 53 percent to 35.1 million Jordanian dinars — the largest growth rate in the Jordanian bank sector in which JIB is the fifth largest player. The bank's total assets increased from 2.25 billion at the end of 2007 to 2.61 billion at the end of 2008. CI, however, warns that at the current rate of asset expansion, JIB is likely to need a significant injection of capital to support growth.
JIB has currently 56 branches throughout the country, nine cash offices and 64 ATMs. The bank employs over 1,611 staff.
CI stresses that despite increased competition, JIB continues to control a substantial share of Islamic financing and deposits in Jordan. "This dominant market position is likely to remain unchallenged for the foreseeable future enabling the bank to sustain its expansion. Jordan's operating environment, however, is becoming more challenging as economic growth slows and credit risk increases. The latter may produce higher NPFs for the bank necessitating stepped up provisioning levels. Net profitability could therefore continue retreating as higher provisions consume operating profit," concludes the CI rating report.
The interim net profit for 2009 showed that profitability was slightly up to 20.7 million Jordanian dinars for the first half of 2009 compared to 209 million Jordanian dinars for the same period in 2008. Similarly, the bank's asset base expanded by 7 percent to reach 2.8 billion while net financing rose by 9 percent mainly due to an increase in Murabaha facilities.
The prospects for JIB in 2009/2010 depends on the performance of the Jordanian economy, which is likely to be impacted more this year because of the contagion effect of the impact of the global financial crisis on the Middle East & North Africa (MENA) region. Jordan, nevertheless, is forecast to sustain a positive GDP growth rate of around 3 percent for 2009.
JIB, in the context of the contemporary Islamic banking movement, is no ordinary bank. After Dubai Islamic Bank and Kuwait Finance House, it is one of the first commercial Islamic banks to be established in 1978. As such, it has a soft spot in the hearts of most supporters of the global Islamic banking movement.
However, more recently Jordan Dubai Islamic Bank, which is owned by a consortium of Jordanian and Dubai investors led by Dubai Islamic Bank, has made its debut, while Saudi Arabia's Al-Rajhi Bank has also been given a license by the Jordan Central Bank. JIB does not consider the entry of new market players as a threat. Instead Musa Shihadeh, the general manager and vice chairman of JIB, considers the new entrants as a welcome move because they will help to raise the awareness and profile of Islamic banking in Jordan even further.
JIB is well positioned to benefit from the rapid growth of Islamic banking in the country. JIB's scale and local experience should stave off competition in the short-to-medium term, and the bank should continue to perform well as long as the operating and Jordanian economic conditions remain favorable.
JIB, despite the constraints of the size of its balance sheet with total assets at the end of 2008 amounting to 2.61 billion, and the size and structure of the Jordanian economy, is proof that a small-to-medium-sized Islamic banks can thrive, albeit as a strong niche banking institution.
Much of the credit here has to go to the unassuming and experienced Shihadeh who has been at the helm of the bank virtually since its establishment. Over the last decade, JIB assets grew by an average annual rate of 12 percent, deposits by 10 percent, and equity by 12 percent. At the end of 2008, the JIB had a market share of the Jordanian banking sector of 8 percent of total assets and 11 percent of total deposits.
This compared with 3 percent market share of total assets of its only competitor in the Islamic banking space in Jordan, the Arab International Islamic Bank, a subsidiary of Arab Bank, the largest bank by far in Jordan. "Maintaining such a rating," explained Shihadeh, "is attributed to the bank's policy and strategy to keep up enhancing its banking and financial activities in the country on the one hand, and due to its special relations with foreign financial institutions on the other hand."
By Mushtak Parker