“The CreditWatch placement follows rating actions taken on Tunisia, Egypt, Jordan, and Bahrain, in which the group operates. The action is also partially attributable to Bahrain’s negative ratings where the bank is incorporated.”
The President and Chief Executive Adnan Yousif said the S&P action was part of the wider unrest in the region where ABP operates.
“The Group is put by the Agency on watch list because of the unfolding events in the MENA. Otherwise the Group is in good shape.”
With total assets of $15 billion on September 30, 2010, ABG and its various subsidiaries comprise a large Islamic banking group, primarily engaged in retail and corporate banking, and operating in numerous MENA countries.
“Although we consider the group’s geographical diversification to be above the average for the region, it is vulnerable to a combined shock in these markets. ABG operates in each country through locally incorporated and majority owned subsidiaries, which we consider to be located in high risk countries, with a banking industry country risk assessment (BICRA) above group ‘5’. The group’s main subsidiaries are in Turkey, 32% of the group’s assets as of September 30 2010, in group ‘6’; Jordan 23%, group ‘8’; Egypt 15%, group ‘8’; Algeria 12%, no BICRA and Bahrain 6%, group ‘5’. “With the exception of Turkey, we note that all other above-mentioned countries have been adversely affected by political instability since December 2010,” S&P added.
“We believe that the current turmoil could materially weaken the group’s operating environment and, in turn, lead to asset quality and profitability deterioration. The extent of such deterioration largely hinges on future sovereign and economic risk developments in the countries where the group operates. Currently mitigating our view of the present risks are the group’s strong brand recognition in Islamic banking; good funding base, the bulk of
Which comes from customer deposits; sound resilience of its largest market (Turkey) where its largest single-name exposures are located; and granular financing portfolio,” the Agency added.
ABG is licensed in Bahrain and regulated by the Central Bank of Bahrain. However, it has very limited business operations in this country. The ratings on ABG are not an indication of the financial strength of its various subsidiaries. They reflect the group’s stand-alone credit profile (SACP) and do not factor in exceptional support from Bahraini authorities or its shareholders. ABG is about 75%-owned and controlled by Saudi businessman
“The CreditWatch placement reflects the uncertainties surrounding the impact of the unstable political environment in the MENA region on ABG’s SACP,” bank’s Chairman Sheikh Saleh Abdullah Kamel in a statement said while commenting on the S&P action.
“To resolve the CreditWatch placement, we will closely monitor the short-term resolution of the CreditWatch placements on Bahrain, Egypt, and Tunisia, as well as the situation in Jordan and Algeria, ultimately re-assessing the group’s SACP in light of the medium-term implications of the ongoing changes in these countries. We could consider lowering the long-term rating on ABG by more than one notch should we deem the implications of the unstable political environment in the MENA region to be durably and markedly detrimental to the group’s creditworthiness,” Sheikh Kamel added.