(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Jordan Commercial Bank (JCB)'s Long and Short-Term Foreign Currency Ratings at BB and B respectively with a Stable Outlook. These ratings are set at the same level as CI's sovereign ratings for Jordan. JCB's Support factor is maintained at 3 in view of the high likelihood of support from the Central Bank of Jordan in case of need. Given the Bank's continued higher than sector average non-performing loan (NPL) ratio, and low loan-loss reserve coverage for NPLs, the Financial Strength Rating is adjusted to BB from BB. Supporting JCB's Financial Strength Rating is the imminent capital increase, ongoing high liquidity and recently improved operating profit. Accordingly, the Outlook for the FSR has reverted to Stable from Negative.
JCB ranks among the small sized banks in the Jordanian domestic banking sector. While the Bank has made good progress expanding its customer deposit and loan franchises over the years, aided by a sizeable branch network, asset quality has been negatively impacted by Jordan's sharp economic slowdown. As conditions in the trade and industry sectors worsened, the Bank saw a marked increase in NPLs in the prior two-year period. The growth in NPLs was a pattern observed across most, but not all, Jordanian banks. JCB's results for the first nine months of 2011 show impaired loans falling due to recoveries and restructuring, suggesting that NPLs had peaked in 2010. Concurrently, in the same period, management has started to address the weak loan-loss reserve coverage through stepped up provisioning levels. Although a substantial amount of unprovided NPLs are covered by collateral, CI views security as being a partial loss mitigant.
The forthcoming capital increase will, to some degree, allay concern over the Bank's high unprovided NPLs to free capital ratio and restore capital adequacy to a sound level. In that regard, JCB's improved operating profitability in the first nine months of 2011 provides the financial flexibility to increase provisions as necessary. Income generation is supported by adequately diversified sources of income. Net profit, however, has been dented in recent years by increased provision charges and, to a lesser extent, falling operating profit, resulting in a further weakening of return on average assets. In common with other Jordanian banks, JCB's balance sheet remains liquid supported by a growing base of customer deposits, its principal source of funding.
JCB is modelled along universal banking lines to provide a comprehensive banking service to corporate and retail clients. It is the successor bank of the erstwhile Jordan Gulf Bank, which was established in Jordan during 1977. In 2004, following a restructuring programme and private placement of shares to a group of prominent investors, including the Social Security Corporation (24%, Jordan government), the Bank was recapitalized, a new management team installed and the current name adopted. The other major shareholders are Mr Michael Sayegh (27.8%) and Mr Naser Mohamed Al-Saleh (23%), a Saudi businessman. The Bank operates a network of 30 branches in Jordan and 4 in Palestine. At end September 2011, total assets amounted to JOD801mn (USD1.13 billion) and total capital JOD97mn (USD136mn).
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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 December 2007. The ratings were last updated in December 2010.
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 information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com