Fitch Ratings has placed Arab Bank PLC’s (Arab Bank) Long-term Issuer Default Rating (IDR) of ‘A-‘ and Viability Rating (VR) of ‘a-‘ on Rating Watch Negative (RWN). A full list of rating actions is at the end of this comment.
“The increasing risks associated with the bank’s operations across the MENA region, specifically in the ‘Arab Spring’ countries. Fitch considers the underlying risks to be increasing as a result of the political unrest and economic slowdown. Although the effects have so far been manageable for Arab Bank, the underlying credit quality of the bank’s investments in this region has weakened; and The ability of the bank, due to the structure of its network and affiliates and its balance sheet management policies, to offset potential constraints on its credit profile that arise from its domicile in Jordan,” Fitch in a statement said.
Fitch expects to review these key rating drivers, which are of high importance to the ratings, and resolve the RWN within the next three months. A downgrade of the bank’s Long-term IDR and VR by more than one notch is possible.
Arab Bank’s IDRs are driven by its intrinsic strength, as reflected in the VR. The ratings mainly reflect the bank’s conservative overall risk appetite for the region, its solid capitalisation, stable funding, strong liquidity and cautious liquidity management. The ‘F1’ Short-term IDR is based on Arab Bank’s strong liquidity, and the bank’s on-going focus on maintaining a high level of liquidity even at the expense of profitability.
The bank’s profitability is currently sound and consistent, but Fitch considers it vulnerable to downside risks given the uncertain operating environment in some of the bank’s main markets.