(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed
BBAC's Long and Short-Term Foreign Currency (FC) Ratings at 'B' and 'B' respectively. These ratings are constrained by CI's sovereign ratings for Lebanon.
The Financial Strength Rating (FSR) is affirmed at 'BB', reflecting the latest increase in capital, improved asset quality, a balanced business profile and a good customer deposit base. The FSR is constrained by exposure to Lebanese sovereign and real estate sector risks, interest rate and maturity mismatches and low operating profitability. Given the high likelihood of official support in case of need, the Bank's Support level is affirmed at '3'.
The Outlook for the ratings is 'Stable'. However, CI notes that ratings would be vulnerable in the event sovereign and political risk factors were to deteriorate, or profitability to weaken further.
BBAC has a good franchise in the Lebanese banking market, with a good balance between retail and corporate business. The Bank has limited geographical diversification, but its business model has spared it from the problems that arose in the wider MENA region last year and endowed it with a diversified customer deposit base. Despite rapid growth in loans, particularly in the corporate segment, growth in net interest income last year was severely restricted by declining yields on LBP securities, lower margins and pressure on loan deposit spreads. Combined with a rise in operating expenses, this drove down BBAC's operating profit and ROAA. Although partly a function of the Bank's higher liquidity, ROAA remains modest due to a low non-interest income base.
The Bank's asset quality improved noticeably last year, which allowed the Bank to maintain bottom line net profit through releases of provisions, while also attaining near full loss reserve coverage. This provides some comfort, as non-performing loans are expected to rise over the near term following more rapid growth in corporate loans last year and the slowdown in the economy.
Having declined due to high growth in risk assets, in the current year BBAC's capital adequacy has improved following the latest preferred share issue.
As is the case with other Lebanese banks, BBAC is exposed to significant concentration risks derived from its large holdings of Lebanese sovereign debt. Following significant improvement in Lebanon's sovereign debt metrics over the past years, the trend in the public debt burden is now expected to reverse as economic growth stalls leading to a weaker sovereign risk profile.
BBAC, formerly Bank of Beirut and the Arab Countries, was founded in 1956. With end 2011 total assets of USD 4.3 billion, the Bank operates through 39 branches, a branch in Cyprus and two branches in Iraq. BBAC offers a full range of commercial and retail banking services including treasury and investment services as well as insurance products. The Bank's shareholder base includes one of the founding families with a 45% share and Fransabank with 37%.
The information sources used to prepare the credit ratings are the rated entity and public information. Capital Intelligence had access to the accounts but no other relevant internal documents of the issuer for the purpose of the rating, but 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 January 1995. The ratings were last updated in May 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