Standard and Poor’s Global Ratings has revised its outlook on Bahrain-based Arab Banking Corp. BSC (ABC) to negative from stable.
“At the same time, we affirmed our ‘BBB-‘ long-term and ‘A-3′ short-term counterparty credit ratings on the bank. The outlook revision reflects our view of increasing economic risk in countries where ABC operates. The group generates the majority of its business from wholesale banking in Brazil and the Gulf region. We also believe that the group’s capitalization could deteriorate from its currently very strong level, although we expect it will maintain its adequate business profile and strong liquidity,” S&P in a statement said.
“In our view, the ABC group will also face increasing risks in the Gulf, owing to its large operations in this region. Given the current pronounced weakness in oil prices, we foresee a visible slowdown in economic growth, pressure on certain sectors of GCC economies, and some deterioration in banks’ asset quality. In turn, these actors will weigh on the ABC group’s financial performance and capitalization,” it added.
“Increasing economic risks could lead us to take a more negative view of the economic environment in countries where ABC operates. Also, we cannot rule out substantial deterioration of the group’s capitalization stemming from the effect of higher economic risks, notably on ABC’s Brazilian exposures, or from weaker-than-expected financial performance in the absence of offsetting bank-specific considerations.”