(MENAFNEditorial) 4 December 2012
Tadhamon International Islamic Bank's Financial Strength Rating Downgraded; 'Negative' Outlook on all Ratings
Capital Intelligence (CI), the international credit rating agency, today announced that it has downgraded the Financial Strength Rating of Tadhamon International Islamic Bank (TIIB), based in Sana'a, Yemen to 'b+' from 'BB-', reflecting the deterioration in TIIB's financial profile. TIIB's Long- and Short-Term Foreign Currency Ratings are assigned at 'b-' and 'c' respectively, at the sovereign ceiling for Yemen. The Bank recorded a loss in 2011, due to weakening asset quality and a subsequent large provision charge, which more than wiped out operating profit. Operating profit itself is very weak, in part due to a loss on foreign currency transactions in 2011. However, a number of the Bank's income lines have historically been very volatile, reflecting its investment assets which contain a large proportion of real estate assets and available-for-sale securities. The Support Rating is maintained at '4'.
Capital adequacy has weakened, with low internal capital generation, and is at an insufficient level in CI's view, particularly given the extremely difficult operating environment and TIIB's asset and risk profile. Supporting the Bank's ratings is full provisioning and a currently adequate funding profile through its unrestricted investment and savings accounts. The Outlook for all Ratings remains 'Negative', owing to the continued extremely challenging operating and economic environment in Yemen, as well as elsewhere in the GCC. Any deterioration in the Bank's financials would put further downward pressure in particular on its Financial Strength Rating.
TIIB has experienced a very challenging period over the past few years. Asset quality and earnings have been hit on two fronts; domestically through the Yemeni crisis in 2011, and regionally on the back of the global financial crisis which has impacted GCC markets. TIIB has significant asset exposure, including unquoted securities and real estate investments in the GCC, and these have been impacted by the downturn. TIIB's earnings streams are volatile and currently core income is weak.
TIIB – a Yemeni joint-stock company - was established under the name of Yemen Islamic Bank for Investment and Development in 1995. The name of the Bank was changed to Tadhamon Islamic Bank. The Bank converted to Islamic banking and changed its name to TIB in 1996 and at the EGM on 20 March 2002 it changed again to its present name. The majority of shares are held by directors, associates, and member companies of the Hayel Saeed Anam (HSA) international group of companies, which is the largest corporation in Yemen. Total assets of the Bank stood at YER358 billion (USD1.7 billion) at end 2011.
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The ratings have been initiated by Capital Intelligence. The issuer did not participate in the rating process. The information source(s) used to prepare the credit ratings is public information. Capital Intelligence had access to the accounts but did not have access to other relevant internal documents of the issuer for the purpose of the rating. However, CI 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 2005. The ratings were last updated in March 2012.
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.
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