Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed
Fransabank SAL's (FB's) Financial Strength Rating (FSR) at "BB". The Bank's Foreign Currency (FC) Long and Short Term Ratings are affirmed at "B", constrained by the Sovereign Ratings of Lebanon. The Support Level is affirmed at 3, reflecting the high likelihood of official support from Banque du Liban (BdL) in case of need given FB's systemic importance and BdL's record of assisting banks.
The ratings reflect the Bank's good income generation, as well as its franchise and supportive shareholders, despite relative weakening of asset quality and capital adequacy. Nonetheless, capital adequacy is expected to improve in the current year through slower growth in risk weighted assets and a new preferred share issue. As is the case with other Lebanese banks, the ratings are constrained by concentration of exposure to Lebanese government securities.
In the expectation that trends in the key areas of asset quality and capital adequacy will improve, the Outlook for the FSR is affirmed Stable. However, ratings are now vulnerable to slippage in asset quality or loss reserve coverage and would also be pressured if capital adequacy does not improve and liquidity continues to tighten.
In 2011 a further step was taken with the acquisition of USB in Cyprus which opens up new long term growth opportunities, although for the time being this has moderately weakened FB's returns and asset quality. Thanks to good performance of the Bank's core operations in Lebanon through Fransabank SAL and Banque Libanaise pour le Commerce (BLC), FB registered above average growth in loans, deposits and net profit despite the economic slowdown in Lebanon and heavier loss provisions. Exposure to Syria, although limited and contained is likely to require continued provisioning and management attention.
Overall liquidity somewhat weakened in relative terms, reflecting high ongoing growth in loans in Lebanon together with USB's acquisition. FB's operating profitability, driven by strong net interest margin and good volume growth, also declined because of high growth in operating costs pursuant to the consolidation with USB Bank “ Cyprus starting February 2011.
Despite significant improvement in Lebanon's sovereign debt metrics over the past years, the trend in the public debt burden is expected to reverse as economic growth stalls leading to a weakening in the sovereign risk profile and increased financial repression on the banking system. More importantly, at times of heightened political risk in Lebanon, systemic factors have affected the banking sector's deposit base placing pressure on liquidity, margins, asset prices and on the exchange rate peg on which Lebanon's macroeconomic stability is so crucially dependent.
With end 2011 total assets of USD14.4 billion, FB is amongst the largest and well established Lebanese banks. Through organic growth and acquisitions FB has steadily increased its market share of deposits and loans in the Lebanese banking system. FB Group operates the largest network in Lebanon of 108 branches and operates along universal banking principles. International operations have grown over the past years and include small subsidiaries in France and Algeria as well as an operation in Syria. The ownership of FB remains tightly controlled, with members of the Kassar family holding the majority of shares. Other prominent Lebanese businessmen are also shareholders, as well as Credit Agricole SA (France) and DEG(Germany) with whom there are a number of joint venture agreements.
The ratings have been initiated by Capital Intelligence. The issuer participated in the rating process. 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. Capital Intelligence 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 amendment following that disclosure. Ratings on the issuer were first released in October 2004. The ratings were last updated in May 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
About Capital Intelligence (Cyprus) Ltd.
Capital Intelligence (CI) has been providing credit analysis and ratings since 1985, and now rates over 400 Banks, Corporates and Financial Instruments (Bonds & Sukuk) in 39 countries. A specialist in emerging markets, CI's geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, South-East Asia, the Far East, and North and South Africa.www.ciratings.com
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