Standard & Poor’s Ratings Services said it raised its short-term counterparty credit rating on Bahrain-based Ahli United Bank B.S.C. (AUB) to ‘A-2’ from ‘A-3’. At the same time, S&P affirmed its ‘BBB’ long-term rating on the bank. The outlook is stable.
“The change in the short-term foreign and local currency ratings on Bahrain to ‘A-2’ from ‘A-3’ follows the publication of our revised criteria regarding the linkage between short-term and long-term sovereign credit ratings see “Methodology: Short-Term/Long-Term Ratings Linkage Criteria For Corporate And Sovereign Issuers,” published May 15, 2012). In accordance with these criteria, we derive the short-term rating on a sovereign government directly and solely from the long-term rating. As a result, the change in the foreign and local currency short-term ratings on Bahrain does not reflect our view of an improvement in its short-term creditworthiness. The same also applies to today’s rating action on AUB,” S&P in a statement said.
“Our ratings on AUB continue to reflect its ‘bbb-‘ anchor, as well as its “strong” business position, “adequate” capital and earnings, “adequate” risk position, “above average” funding, and “strong” liquidity, as our criteria define the terms.
“The stable outlook on AUB reflects our view that its business position and financial profile will likely remain unchanged over the next two years. The bank’s good geographic diversification should help it remain resilient against the current tough operating environment in Bahrain, and keep its financial profile at a level commensurate with the current ratings.
“The outlook also factors in our expectation that AUB will maintain its asset quality and liquidity metrics at their current levels. We anticipate that the Standard & Poor’s risk-adjusted capital (RAC) ratio before adjustments for AUB will remain slightly above 7.0% over the next 18 to 24 months, based on our expectation that AUB’s financial performance over the same timeframe will slightly improve. This should support its capitalization, especially given our expectation for subdued balance sheet growth.
“A positive rating action on AUB would hinge on an upward revision of transfer and convertibility (T&C) assessment on Bahrain and our continued assessment of AUB’s stand-alone credit profile (SACP) at ‘bbb+’.
“A downward rating action would stem from deterioration in key rating attributes to such a degree that we revise down AUB’s SACP to lower than ‘bbb’. This would include, but is not limited to, the RAC ratio before adjustments on AUB falling below 7% and considerable weakening in its funding and liquidity. A material shift in the geographic breakdown of AUB’s assets to economically riskier countries, leading us to revise down the anchor based on our blended economic risk score could also prompt a negative rating action. In light of AUB’s low exposure to Bahrain (about 15% of its assets); a one-notch downgrade of Bahrain would likely not trigger the same action on AUB, provided that our T&C assessment on Bahrain remains at ‘BBB’.”