(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, today announced credit rating action on National Bank of Yemen (NBY), based in Aden, Yemen. NBY's Long- and Short-Term Foreign Currency Ratings were affirmed at B- and C, respectively, reflecting the very weak and volatile operating environment. The Financial Strength rating was downgraded to BB-, due to severe weakness in the economy and the political situation, and the attendant risk to the Bank's financials, particularly asset quality and liquidity. The Financial Strength rating is supported by NBY's high capital adequacy, continued profitability and relatively advantageous position in the south of the country. All ratings remain on Negative Outlook. The Support rating is maintained at 3, reflecting full Yemeni government ownership, combined with moderate capacity of the government to support the banking sector.
NBY possesses a balance sheet with exposure mainly in the form of short-term Yemeni Treasury bills, which formed over one-half of total assets at end September 2011. Central Bank of Yemen and other bank deposits are also significant relative to the balance sheet. As a result, the capital adequacy ratio is very high, given the zero risk weight assigned to Yemeni T-bills. NBY has recorded a consistent record of profitability over the years, driven by interest earned on treasury bills.
There remains significant credit risk in Yemen reflecting the ongoing, political turmoil and extreme fragility of the state, as well as the associated, substantial deterioration in economic fundamentals and fiscal and balance of payments distress. The political situation in Yemen remains extremely volatile, despite recent elections confirming Abduraba Mansur Hadi as the President, who had previously served as vice-president to ex-President Saleh.
All Yemeni commercial banks have been negatively affected by the deteriorating economic, political and security situation, experienced by the country since the beginning of February 2011. Most Yemeni banks have severely restricted or stopped their domestic banking services, with their only activities being management of foreign currency placements and Yemeni Government treasury bills. Liquidity has also tightened, with some banks having experienced significant deposit withdrawals. NBY's NPLs rose to end September 2011. However, NPLs are immaterial, as the loan portfolio remains very small against total assets and capital. Nonetheless, the NPL ratio is high and is a reminder of the high risk operating environment.
NBY was established in 1969 in the former People's Democratic Republic of Yemen (South Yemen) as a State-owned institution, to assume the business of a number of foreign banks nationalised at that time. Following the unification of the two Yemeni states in May 1990, NBY extended its reach, but remains small by international standards due in part to a more conservative approach than its competitors. As at end September 2011, total assets amounted to YER102,881mn (approximately USD490mn).
CONTACT
Primary Analyst
Darren Stubing
Senior Credit Analyst
Tel: 357 2534 2300
E-mail: darren.stubing@ciratings.com
Secondary Analyst
Peter McFerran
Senior Credit Analyst
E-mail: peter.mcferran@ciratings.com
Rating Committee Chairman
Morris Helal
Senior Credit Analyst
REGULATORY DISCLOSURES
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 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 February 2001. The ratings were last updated in August 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.
