Capital Intelligence affirms AlBaraka Islamic Bank's ratings 

(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed Bahrain-based AlBaraka Islamic Bank (AIB)s Foreign Currency Long and Short-term ratings at BB and A3 respectively. The Banks Financial Strength Rating was also maintained at BB in view of the moderate improvement in asset quality and profitability in the first nine months of 2010, notwithstanding ongoing challenges associated with building profitability to a solid footing. The Support Level of 2 reflects AIBs strong ownership through its parent AlBaraka Banking Group in Bahrain. The Outlook for the ratings is Stable.

AIBs asset quality and profitability had suffered a significant setback in 2009 as a result of the sharp increase in non-performing financings (NPFs) related to two large distressed borrowers in Saudi Arabia and Kuwait. In response to the increase in NPFs the Bank stepped up provisioning to unprecedented levels. However the Banks ongoing weak operating profitability severely restricted its capacity to absorb the substantial provision charges and this resulted in a record net loss. Although the latter had the undesirable effect of eroding the capital base to a discernible degree, the balance sheet remains solidly capitalised. Free capital however is rather strained by the level of unprovided NPFs. The Bank resumed lending in the current year but rather cautiously given the current challenging economic environment. The liquidity position continued to improve as measured by the net financing to stable funds ratio and the increased pool of liquid assets. AIB nonetheless remains a small bank by all measures and this gives rise to concentrations within funding and assets.

While the recent merger of AIBs Pakistan operation with Emirates Global Islamic Bank in Pakistan has increased geographic exposure to Pakistan, it is noteworthy that the bulk of AIBs asset quality problems have historically related to the Bahrain operation. That said, AIBs exposure in Pakistan poses a comparatively high level of credit risk within the context of sovereign risk factors and the countrys challenging operating environment. Emirates Global Islamic Bank is a small bank (total assets USD175mn) set up in Pakistan in 2007 by UAE and Saudi investors.

AIB reported total assets of just over USD1 billion at end September 2010. Its principal activities include the provision of Sharia compliant demand and investment accounts (with respect to the latter the Bank shares profits as skill/expertise provider or agency (for a fee); finance and investment on the basis of Murabaha (cost plus profit margin), Mudaraba (the Bank shares profits as capital provider), Musharaka (participation investment) and Ijara.


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 of the issuer 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.

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 August 1994. The ratings were last updated in July 2009.

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 can be found at www.ciratings.com