Fitch Ratings has downgraded Arab Bank PLC's Long-term Issuer Default Rating (IDR) to 'BBB-' from 'A-' and Viability Rating (VR) to 'bbb-' from 'a-' and removed them from Rating Watch Negative (RWN). The Outlook is Negative. A full list of rating actions is at the end of this comment. The downgrades reflect the heightened risks associated with parts of the bank's operations across the MENA region, in particular in 'Arab Spring' countries. The effects have so far been manageable for Arab Bank (for example, loan impairment charges fell in 9M13). Nonetheless, the operating environment in Jordan is tough and the underlying risks associated with the bank's exposures (loans, investments, central bank deposits) in important parts of the wider MENA region (eg, Egypt , Tunisia ) have, in Fitch's view, increased since their last review of the bank. Although domiciled in Jordan , the bank's operations extend well beyond the country, with notable operations (branches, subsidiaries and affiliates) in the GCC, North Africa and Europe. Arab Bank's IDR and VR take into account this geographic diversification. Its banking operations in the GCC countries and outside the MENA region and a portfolio of high quality investment securities and deposits mainly in Europe enable the bank's ratings to be higher than its peers in Jordan . This geographic diversification, along with the bank's solid capitalisation, conservative overall risk appetite, stable funding profile, the structure of its network and affiliates and its liquidity management policies mean Fitch believes Arab Bank is able to mitigate risks to its credit profile associated with its domicile, but cannot completely offset them. Arab Bank's IDRs are not capped by Fitch's view of Jordanian sovereign risk, but are linked to it. The bank's profitability is currently sound (9M13 operating ROAE of 13 per cent, for example) and consistent, but Fitch considers it vulnerable to downside risks given the uncertain operating environment in some of the bank's main markets. The Negative Outlook reflects residual risks to Arab Bank's credit profile arising from its domicile and the ratings would be downgraded if Fitch's opinion of Jordan's creditworthiness weakened. A change in Fitch's assessment of the bank's ability to offset sovereign-related risks (for example, banking sector intervention risk or transfer and convertibility risk) or an increase in economic and political risks in the broader MENA region could also result in downward pressure on the bank's IDRs. Downward pressure from internal factors (such as, a material increase in risk appetite) is unlikely, in Fitch's opinion. Conversely, the Outlook would likely be revised to Stable if Fitch's opinion of Jordanian sovereign risk stabilised.
Most Popular Stories
- Dmytro Firtash, Ukrainian Billionaire, Arrested in Vienna
- Obama, Ukraine Discuss Russian Incursion in Crimea
- Herbalife Puts Off Meeting for Icahn Talks
- Navarro Celebrates 2 Years of Vida Mia
- Calumet Photo Files for Bankruptcy
- Ukraine Loan Delayed While Congress Goes on Vacation
- Federal Gov't Deficit Continues to Decline
- Ukraine Moves Closer to Joining E.U.
- Venezuela Death Toll Reaches 28
- Russia Holds Large Military Drills in South