(MENAFN Press) Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Investbank's Long- and Short-Term Foreign Currency Ratings at BB and B respectively. These ratings are placed at the same level as CI's sovereign ratings for Jordan. In view of the high likelihood of support from the Central Bank of Jordan in case of need, the Support factor '3' is maintained. Notwithstanding the significant increase in non-performing loans (NPLs), partly due to the effect of Jordan's marked economic slowdown, the Bank's Financial Strength Rating is affirmed at BB on the basis of the recent capital increase, ongoing strong operating profitability and high liquidity. All ratings carry a 'Stable' Outlook.
Investbank ranks among the small-sized institutions in the Jordanian banking sector. A new Chief Executive Officer appointed in the second quarter of 2011 has led to an exhaustive review of the credit portfolio. That process culminated in a significant increase in NPLs in the third quarter of the same year, to a level above that of the Jordanian sector average. The Bank's impaired loans had started to rise a few years earlier amid Jordan's slowing economy. Strong remedial measures recently implemented have translated into recoveries, with the result that NPLs declined and loan-loss reserve coverage improved in Q4 2011. While the economy continues to grow at a measured pace, ongoing geopolitical risks in the region could hamper the country's projected economic expansion and magnify credit risk in the market.
The recent successful rights issue, launched to meet new regulatory paid-up capital requirements, has strengthened shareholders' equity and served to mitigate the increase in unprovided NPLs to free capital. Investbank's capital base now provides good scope for business expansion over the near to medium term. Liquidity continued to be a source of strength, in common with other Jordanian banks, reflecting the relatively low share of loans in total assets. Notwithstanding a decline in the liquid asset ratio in recent years due to credit expansion, liquid asset holdings remained significant. Funding is sourced principally from customer deposits.
Investbank's sources of income are adequately diversified. Although net profitability was dented in the first nine months of 2011, due to stepped up provisioning for new NPLs, operating profitability remained strong and significantly better than the sector average thanks to high gross income generation and a relatively small cost base. The good level of operating profit provides the flexibility to create provisions as necessary.
The Bank was established in 1982 as a financial and investment company and subsequently granted a license to operate as an investment bank in 1989. The Bank was set up by a group of prominent local businessmen, including Jordanian expatriates in Kuwait. The founding shareholders continue to have sizeable stakes in the Bank. Operations are focussed on lending to commercial entities and individuals, treasury and financial brokerage. Following a rebranding exercise in 2008, the Bank's name was changed to 'Investbank' (though its official name remains Jordan Investment & Finance Bank). The Bank reported consolidated total assets of JOD657mn (USD926mn) and total capital of JOD112mn (USD158mn) at end September 2011.
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 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 December 2001. The ratings were last updated in January 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