Fitch affirms JIB, BOJ at BB-; outlook negative

London: Fitch Ratings has affirmed Jordan Islamic Bank (JIB) and Bank of Jordan’s (BOJ) Long-term foreign currency Issuer Default Ratings (IDR) at ‘BB-‘. The outlooks are negative.

Both JIB and BOJ’s IDRs are driven by their intrinsic strength, as indicated by their VR.

Both BOJ and JIB are essentially domestic banks, and their ratings reflect and are constrained by the still difficult (although improving) operating environment in Jordan. Both banks have sound and improving asset quality indicators. However, the ratings reflect asset quality risks, which are also mainly driven by the operating environment, and some lending/financing concentrations. The ratings further take into account the banks’ healthy profitability. Both banks have a long track record of solid profit generation. The ratings also reflect a solid funding base, consisting of diversified local deposits, and sound liquidity.

Asset quality indicators remain strong. JIB’s non-performing financing represented an acceptable 4.35% of gross financing at end-2013, essentially the same level as at end-2012 except that in 2013 the non-performing financing ratio was not distorted by high financing growth as was the case in 2012. Unreserved impaired financing represented almost 9% of Fitch core capital at end-2013. BOJ’s impaired loan ratio improved to 8.7% at end-2013 from 9.9% at end-2012. The improvement was largely due to recoveries. Reserve coverage also improved and unreserved impaired loans represented an insignificant 2% of Fitch core capital at end-2013.

Both banks have a solid and diversified deposit base. Accordingly, deposit concentration is low. Liquidity remains sound. Highly liquid assets consisting of cash and interbank placements accounted for 26% of JIB’s assets at end-2013 and 38% of BOJ’s (the latter includes government securities; JIB does not hold non-sharia compliant securities, so liquidity is mainly bank placements).

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