Actions reflect Moody's downgrade of Jordan's local-currency sovereign rating and increased economic downside risks
Limassol, February 14, 2011 -- Moody's Investors Service has today downgraded the local-currency
(LC) deposit ratings of Arab Bank plc to Baa1 from A3, and of Cairo
Amman Bank to Ba2 from Ba1. Concurrently, Moody's has
placed the ratings of these two banks together with the ratings of Housing
Bank for Trade and Finance on review for possible downgrade.
Today's downgrade of the LC deposit ratings are prompted by Moody's
decision on 8 February to lower the sovereign LC rating of Jordan by two
notches to Ba2 (negative outlook) from Baa3 (stable outlook) as well as
the country ceiling for LC deposits to Baa1 from A3. The review
for possible downgrade for all three banks reflects concerns that the
current turmoil in the region, following events in Egypt and Tunisia,
could also potentially have a negative impact on economic activity in
Jordan.
For a full list of the ratings affected, please see the end of the
press release.
RATINGS RATIONALE
Under Moody's methodology, a government's credit strength serves
as a key input in assigning the country's systemic support indicator (SSI).
This measures a country's capacity to support its banking system
which, in turn, can provide rating uplift to the deposit and
debt ratings of a bank. Following the sovereign downgrade,
Moody's lowered Jordan's SSI to Ba1 from Baa2. The
repositioning of the SSI, which is still one notch above the revised
government rating (Ba2), had a direct impact on the LC deposit rating
of Cairo Amman Bank due to the two-notches of rating uplift it
previously received from the SSI. The downgrade of Arab Bank's
LC deposit rating to Baa1 from A3 reflects the lowering of the country's
LC deposit ceiling to Baa1, rather than the repositioning of the
country's SSI.
"The three rated Jordanian banks' standalone bank financial strength
ratings (BFSRs) and LC deposit ratings have been placed on review for
possible downgrade to assess the potential impact on the banks' finances
from the recent rise in political tensions in Jordan following the turmoil
in the region," explains Nondas Nicolaides, a Moody's
Vice President and Senior Analyst. "Moody's is concerned
that there is a heightened risk of possible deterioration in Jordan's
economic conditions due to contagion risk from the current political events.
This could negatively impact foreign direct investment flows into Jordan
and disrupt economic activity, weakening the performance of the
main economic sectors such as tourism, exports and real-estate/construction
projects," he adds.
Moody's notes that the review will also assess the banks' exposure
to Jordanian sovereign risk, as well as to other regional sovereigns
affected by the current political tensions. The downgrade of the
sovereign ratings for Jordan, Egypt and Tunisia means that any significant
exposure through the corresponding government securities relative to the
banks' equity base, would exert pressure on their overall
credit standing.
With reference to Arab Bank, whose BFSR is downgraded to C (now
mapping to a baseline credit assessment (BCA) of A3) from C+,
Moody's says that notwithstanding the bank's relatively strong financial
fundamentals, its intrinsic financial health has weakened as a result
of the potential impact of political instability in the Middle East and
North Africa (MENA) region and on the economic conditions within that
region.
Arab Bank's core business franchise is within the MENA and the Gulf
region and as a result, is also highly exposed to sizeable LC government
securities portfolio that are rated in the non-investment grade
relative to its Tier 1 capital. In addition, Arab Bank has
shown somewhat weakening financial fundamentals over the last two years,
mainly due to increased non-performing loans (NPLs) and lower profitability
metrics, suggesting downward pressure on its BFSR. However,
the bank continues to be strongly capitalised and highly liquid with a
robust deposit franchise both domestically and in the region.
BANK RATINGS AFFECTED BY TODAY'S RATING ACTIONS
- Arab Bank plc: The bank's BFSR has been downgraded to C
from C+ and its LC deposit ratings downgraded to Baa1/P-2
from A3/P-2 due to the downgrade of the respective sovereign ceiling.
Its foreign-currency (FC) deposit ratings remain at Ba3/NP,
constrained by the respective sovereign ceiling. All ratings have
been placed on review for possible downgrade, except the long-term
FC deposit rating of Ba3, which has a negative outlook in line with
the sovereign ceiling outlook.
- Arab Bank plc (Dubai Branch): The branch's FC deposit
ratings have been downgraded to Baa1/P-2 from A3/P-2,
in line with the parent bank's LC deposit ratings and were placed
on review for possible downgrade.
- Housing Bank for Trade and Finance: The bank's LC
deposit ratings of Baa1/P-2 and its BFSR of C- (mapping
to a BCA of Baa2) have been placed on review for possible downgrade.
The bank's FC deposit ratings of Ba3/NP remain unchanged and have
a negative outlook in line with the sovereign ceiling outlook.
The LC deposit ratings benefit from one notch rating uplift from the bank's
BCA due to imputed support from its supportive shareholder Qatar National
Bank (BFSR of C- mapping to a BCA of Baa1) that has a 34.4%
stake in the bank.
- Cairo Amman Bank: The bank's LC deposit ratings have
been downgraded to Ba2/NP from Ba1/NP and placed on review for possible
downgrade, together with its BFSR of D- (mapping to a BCA
of Ba3). The bank's FC deposit ratings of Ba3/NP remain unchanged
and have a negative outlook in line with the sovereign ceiling outlook.
PREVIOUS RATING ACTIONS & PRINCIPAL METHODOLOGIES
Moody's previous rating actions on the three rated Jordanian banks were
implemented as follows:
- The last rating action on Arab Bank was implemented on December
4, 2006 when LC deposit ratings of A3/P-2 were assigned.
- The last rating action on Housing Bank for Trade and Finance
was implemented on December 07, 2009 when the bank's long-term
LC deposit rating was downgraded to Baa1 from A3
- The last rating action on Cairo Amman Bank was implemented on
December 07, 2009 when a positive outlook was assigned to the bank's
BFSR
The principal methodologies used in these ratings were "Bank Financial
Strength Ratings: Global Methodology" published in February 2007
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology" published in March 2007.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Headquartered in Amman, Arab Bank Group had total assets of JOD36.5
billion (US$51.1 billion) as of end-December 2010.
Headquartered in Amman, Housing Bank for Trade and Finance had total
assets of JOD6 billion (US$8.4 billion) as of end-September
2010. Headquartered in Amman, Cairo Amman Bank had total
assets of JOD1.8 billion (US$2.5 billion) as of end-September
2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The ratings have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Limassol
Nondas Nicolaides
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
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London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's takes rating actions on three Jordanian banks