Fitch Ratings has affirmed Jordan-based Jordan Islamic Bank’s (JIB) long-term issuer default rating (IDR) at ‘BB-‘ with a stable outlook, and viability rating at ‘bb-‘. A full list of rating actions is below.
JIB’s long-term and short-term IDRs are driven by its intrinsic strength, although Fitch considers support from the authorities might be forthcoming if required, especially in view of the bank’s retail deposit franchise and the authorities’ generally supportive stance. JIB has a strong Islamic banking franchise in Jordan, especially in the retail segment, sound core profitability, stable funding base and strong liquidity. The ratings also factor in the relatively weak operating environment in Jordan, and also reflect fairly basic risk management systems, and lower capital than most peers.
JIB showed improved revenue generation in Q111 with stronger net financing income – the Islamic equivalent of net interest income – and fee income. Fitch expects this slight improvement to continue for the remainder of 2011. Business volumes are increasing, and margins are wider as rising liquidity in the banking system reduces pressure on deposit margins (or in JIB’s case, profit-sharing rates). Despite the stronger revenues, JIB’s operating profit dropped by about 10% yoy during the period, mostly on higher impairment charges.
The bank has a conservative attitude towards risk, which is reflected in relatively sound asset quality; stronger than the average for Jordanian banks. Loan quality deteriorated slightly in 2010 and Q111 but still compares well against many of JIB’s peers. Non-performing exposures rose to JOD70m (excluding interest in suspense), which represented 5.4% of the total at end-Q111. Reserve coverage was adequate at 73% at end-Q111; unreserved impaired exposures were equivalent to about 9% of the bank’s end-Q111 equity.
JIB has a liquid balance sheet, with cash and interbank placements accounting for about 43% of assets. JIB’s financing/deposit ratio is about 56%; the remainder of the bank’s assets consists mostly of interbank placements, mostly with the Central Bank of Jordan. The bank has a strong and stable deposit franchise especially among smaller retail depositors, including small businesses. Deposit growth was strong at 20% during 2010, outpacing growth of financing, and JIB accumulated even more liquidity.
Capital ratios weakened slightly in 2010 but remain adequate, with a Fitch core capital ratio of 13% and a regulatory Tier 1 ratio of 11.7% at end-2010. Ratios are calculated according to Basel II. JIB’s equity/assets ratio is lower than that of peers, however, with capital ratios benefiting from the substantial amount of zero-risk-weighted placements with the CBJ.