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Rating Action:

Moody's takes rating actions on three Jordanian banks

14 Feb 2011

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.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Cyprus Ltd.
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319 28th October Avenue
PO Box 53205
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Moody's takes rating actions on three Jordanian banks
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