Fitch rates Jordan's Arab Bank

Fitch Ratings, the international rating agency, has assigned a ‘BBB+’ Long-term rating, ‘F2’ Short-term rating and ‘5’ Support rating to Jordan’s Arab Bank plc.

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By  Massoud Derhally Published  April 15, 2002

Fitch Ratings, the international rating agency, has assigned a ‘BBB+’ Long-term rating, ‘F2’ Short-term rating and ‘5’ Support rating to Jordan’s Arab Bank plc. The Rating Outlook is stable. At the same time the Agency has affirmed its ‘B’ Individual rating. The current Long- and Short-term ratings of ‘AA-’ (AA minus) and ‘F1’ (both on negative Rating Watch) previously assigned by Thomson Bank Watch have been withdrawn.

These ratings related only to foreign currency obligations of specific international branches, while Fitch's ratings have been assigned Arab Bank plc, incorporating both its Jordanian activities and foreign branches.

Arab Bank Plc's ratings reflect its position as a leading Middle Eastern commercial bank serving the Arab world's global financial needs. Despite being domiciled in Jordan, it is geographically diversified with more than 80% of consolidated activities (and over 90% of equity) outside the Kingdom. It has demonstrated an ability to weather regional crises, a history of sound profitability and a record of prudent balance sheet management - factors that underpin ratings significantly above those of the Jordanian sovereign. However, despite its diversity and large element of non-Middle Eastern risk, its focus on Arab markets means it is not immune to the impact of ongoing political tensions and the region’s less developed/industry reliant economies. It has a history of consistent profitability but higher returns have been sacrificed for the need to maintain greater liquidity.

An experienced management team and an entrenched risk management culture is in place with asset quality underpinned by a prudent credit culture. Problem loans have been on the rise due to difficult conditions in Jordan, Egypt, and Lebanon, but these are fully reserved. The balance sheet is liability driven with liquidity a particular focus. Funding is diversified and very stable, supported by customer loyalty, and its strong liquidity position has been stress tested on a number of occasions. A sound risk weighted capital adequacy ratio (17.1% at end-June 2001) is supported by a policy of retaining earnings and paying low dividends p.

Arab Bank Plc was established in 1930 in Jerusalem, moving its head office to Amman, Jordan in 1948. It is the main subsidiary of Arab Bank Group (ABG) that also includes a Swiss-based sister company Arab Bank Switzerland (ABS). ABS was formed in 1962 as an independent Swiss company outside of the Middle East due to the region's instability. ABG is listed on the Amman Stock Exchange accounting for over 40% of the market's capitalisation. Arab Bank is the largest bank in Jordan with loan and deposit market shares of 22.5% and 35% respectively. Internationally it has a comprehensive network of branches, subsidiaries (wholly and majority owned) and affiliates.

Given Arab Bank's size Fitch is of the view that the Kingdom of Jordan would not be able to support the bank in case of need. The Agency’s Support rating reflects its opinion that the bank’s regional importance may lead to a co-ordinated approach by regional regulators and key shareholders. The latter includes its founders, the Shoman family with 17%, the Prime Minister of Lebanon (4.7%), the Ministry of Finance of Saudi Arabia (4.6%) and the Jordanian Social Security Fund (4.6%).

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