(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Capital Bank of Jordan (CAP)'s Financial Strength Rating (FSR) of 'BBB-'. The Outlook for the FSR remains 'Negative' in view of the ongoing high non-performing loan (NPL) ratio, weak loan-loss reserve cover, meager net profit, concentration risks and the ongoing challenging economic environment in Jordan. Conversely, the FSR continues to be supported by the Bank's strong liquidity, growing customer deposit base, better than sector average operating profitability and high capital adequacy ratio. In the event that the expected improvement in NPLs and loan-loss reserve coverage does not materialize in 2012, then it is more than likely that the FSR will be adjusted downward by a notch. CAP's Long-Term and Short-Term Foreign Currency Ratings were affirmed at 'BB' and 'B' respectively, with a 'Stable' Outlook. These ratings are set at the same level as CI's sovereign ratings for Jordan. The Support Level remains at '3' in view of the high likelihood of official support in case of need.
CAP has faced challenging credit related issues in recent years in the aftermath of the shock from the global financial crisis and, subsequently, one-off lending irregularities connected to the former chairman. Being predominantly a corporate bank with large loan exposures in the trade sector, the economic slowdown in Jordan had a bigger impact on CAP's loan portfolio than that of its peers. As a result, the Bank's NPLs reached a record level in both money and ratio terms, though current trends suggest that NPLs had peaked in 2011. In response to those events, management has tightened the credit policy, including reducing single borrower limits, while continuing to aggressively pursue collections and recoveries and to a lesser extent restructuring. A significant loan settlement is expected in the current year and this is expected to bring about a fall in impaired loans.
Although the Bank's capital adequacy ratio remained high, the capital base is currently impaired by unprovided NPLs. The situation should start to improve moderately in the current year as loan-loss reserve coverage is restored to an adequate level. In that regard, CAP's ongoing sound operating profit provides the flexibility to increase provisions as required. Performance at the operating profit level rebounded strongly in the year under review on the back of a sharp increase in fee and commission income at CAP and the Iraqi subsidiary National Bank of Iraq (NBI). Notwithstanding CAP's sound operating efficiency, the effect of loan-provisioning and a one-off charge related to a legal case continued to consume operating profit. ROAA thus remained weak. Liquidity has improved to a strong level as surplus funds continued to be deployed into government paper. Sustained strong growth in the customer deposit base has underpinned the rise in liquidity.
CAP is the name adopted on 3 September 2006 for the former 'Export & Finance Bank' established in 1995. It is a full service commercial bank, providing a wide array of banking, investment products and services to mainly corporate and individual customers alike. Following a newly constituted board, CAP is consolidating its branch network in Jordan and expanding selectively in Iraq through NBI. Currently 13 branches are in operation in Jordan and 8 branches in Iraq through NBI. The Bank is majority owned by a group of prominent Jordanian businessmen. The state Social Security Corporation retains less than 10%. The Bank reported consolidated total assets of JOD1,396mn (USD1.96 billion) and total capital of JOD234mn (USD330mn) at end 2011.
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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 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 released with no amendment following that disclosure. Ratings on the issuer were first released in November 2004. The ratings were last updated in March 2011.
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