While Jordan’s Arab Bank faces geopolitical instability in core markets such as Egypt and Tunisia , raising risks for its loan book, investment portfolio, and profitability, these growing risks are balanced by robust operations in the Gulf States and lower-risk activities in Europe and the rest of the world, according to a report. Moody’s Investors Service in its latest report said the bank’s wide geographic diversification and moderate exposure to the Jordanian sovereign underpin its standalone baseline credit assessment (BCA) of ba2 and Ba2 local-currency deposit rating, two notches higher than the government of Jordan (B1/stable). Arab Bank’s exposure to the unsettled operating environments in North Africa and the Levant1 operations in these countries. These include rising problem loans as political uncertainty constrains economic recovery; weakened quality of associated sovereign debt holdings; and lower profits as a result of higher provisioning needs and constrained business opportunities. Set against these rising risks, are Arab Bank’s strong operations in the Gulf countries and in the rest of the world. The bank has around 20 per cent of its assets in the Gulf and another 20 per cent in advanced economies in Europe , the Americas and Australia . The Gulf operations in particular benefit from benign operating conditions and we expect their strong revenue streams to bolster Arab Bank against possible losses in higher-risk regions. The bank also benefits from unconsolidated affiliates in Saudi Arabia and Oman , which provide stable recurring profits, while liquid assets held in Europe and the Americas act as a hedge against regional political risks. Geographic diversification and moderate exposure to Jordanian sovereign risk underpin Arab Bank’s standalone BCA, which is two notches above the rating assigned to the Jordanian government. "We estimate that the bank’s direct exposure to Jordanian government debt is around 50 per cent of the bank’s Tier 1 capital, while only a quarter of the bank’s assets are in Jordan ," analysts at the Moody’s Investors Service said. "Operations in Middle East and North Africa are, and will remain, at the core of Arab Bank’s franchise. However the geographic mix of its operations in both high- and low-risk countries in the region, as well as internationally, afford the bank sufficient risk and revenue diversification to withstand pressures." Arab Bank’s exposure to countries facing unsettled operating conditions accounts for around 30 per cent its assets, prompting downside risks for its loan book quality; the quality of its portfolio of regional sovereign bonds; and its profitability.
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