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Related Issuers
Rating Action:

Moody's affirms Bank Al-Jazira's A3/P-2 ratings, with a stable outlook

Global Credit Research - 16 Apr 2013

Limassol, April 16, 2013 -- Moody's Investors Service has today affirmed the A3/Prime-2 global foreign and local-currency deposit ratings of Saudi-based Bank Al-Jazira (BAJ). At the same time, Moody's has affirmed BAJ's D+ standalone bank financial strength rating (BFSR), equivalent to baa3 baseline credit assessment (BCA). The stable outlook on the ratings remains unaffected.

Moody's rating affirmation reflects BAJ's (1) successful transformation from a brokerage house to an Islamic bank; and (2) improved asset-quality and coverage metrics. The rating affirmation also takes into account BAJ's high credit concentrations and relatively weak capital and profitability, which partially counterbalance these credit-positive factors.

RATINGS RATIONALE

-- SUCCESSFUL TRANSFORMATION FROM BROKERAGE HOUSE TO ISLAMIC BANK

The primary driver of today's rating action is our view that BAJ's transformation into an Islamic bank from a brokerage house has been successful. The bank has reduced its reliance on volatile income from the brokerage business to 18% of operating income as of year-end 2012, from around 80% as of year-end 2006. Commensurately, BAJ's banking operations now generate 82% of total operating income. BAJ's increase in market share to 2.9% as of year-end 2012 (in terms of total assets), from 2.1% as of year-end 2008 (CAGR of 19% compared to Saudi system average of 7%), has also supported the bank's transformation. This growth has been achieved through an expanded branch network (to 54 branches as of year-end 2012), which has resulted in substantial growth in deposits (CAGR of 18% between 2008 and 2012) and retail financing, which currently accounts for 34% of gross financing, compared with 11% as of year-end 2008.

-- IMPROVED ASSET QUALITY WITH SOLID LOSS COVERAGE

The affirmation also takes into account the bank's improved asset-quality metrics, with non-performing financing (NPF) ratio declining to 4.7% as of year-end 2012, from a peak of 7.6% as of year-end 2009, primarily due to financing growth and the benign operating environment. During the same period the bank's coverage ratio also increased to 93% and compares favourably with those of its global peers. Going forward, we expect asset quality and coverage metrics to improve, as the benign operating environment in Saudi Arabia supports borrowers' repayment capacity and as we expect various large exposures currently impaired to be resolved in 2013. Please note Moody's considers financing exposures over 90 days past due as impaired for the calculation of NPF and coverage metrics.

-- STRENGTHS MODERATED BY CONCENTRATION RISK AND CAPITAL PRESSURES

Despite the improvements above, the affirmation also recognises that these credit-positive factors are moderated by (1) persistent structural weaknesses of high borrower and sector credit concentrations, (2) the bank's moderate Tier 1 ratio of 12.1%, which compares unfavourably with Saudi system average of 15.7% as of year-end 2012 and will remain under pressure from expected future loan growth, and (3) relatively weak profitability metrics, driven by BAJ's high operating cost base and relatively low net margins.

BAJ's A3 deposit ratings incorporate three-notches of uplift from its standalone BCA, based on Moody's assessment of a very high probability of systemic (government) support in case of need. Moody's views Saudi Arabia as a high support country based the Saudi authorities' strong track record of supporting banks in times of stress.

What Could Change the Rating Up/Down

Although the outlook is stable, upwards pressure on BAJ's standalone BCA could develop if the bank (1) significantly improves its asset quality, capitalisation and profitability metrics; and/or (2) further strengthens and diversifies its franchise; and/or (3) significantly reduces its credit and funding concentrations.

Downwards pressure on BAJ's BCA could develop following (1) a substantial weakening of its franchise; or (2) deterioration in asset quality, capitalisation and profitability metrics; or (3) further increases in credit and funding concentration.

The principal methodology used in these ratings is Moody's Consolidated Global Bank Rating Methodology published on 29 June 2012. Please see the Credit Policy page on www.moodys.com for a copy of the methodology.

As of 31 December 2012, BAJ reported total assets of SAR51 billion ($13.8 billion).

The local market analyst for BAJ's ratings is Nitish Bhojnagarwala +971.4.237.9563.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christos Theofilou
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Bank Al-Jazira's A3/P-2 ratings, with a stable outlook
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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