Fitch Ratings has downgraded Arab Bank PLC’s long-term issuer default rating (IDR) to BBB- from A- and viability rating (VR) to bbb- from a- and removed them from rating watch negative (RWN). The outlook is negative.
“The downgrades reflect the heightened risks associated with parts of the bank’s operations across the MENA region, in particular in ‘Arab Spring’ countries. The effects have so far been manageable for Arab Bank (for example, loan impairment charges fell in 9M13). Nonetheless, the operating environment in Jordan is tough and the underlying risks associated with the bank’s exposures (loans, investments, central bank deposits) in important parts of the wider MENA region (eg, Egypt, Tunisia) have, in Fitch’s view, increased since our last review of the bank,” Fitch in a statement said.
“Although domiciled in Jordan, the bank’s operations extend well beyond the country, with notable operations (branches, subsidiaries and affiliates) in the GCC, North Africa and Europe. Arab Bank’s IDR and VR take into account this geographic diversification. Its banking operations in the GCC countries and outside the MENA region and a portfolio of high quality investment securities and deposits mainly in Europe enable the bank’s ratings to be higher than its peers in Jordan.
“This geographic diversification, along with the bank’s solid capitalisation, conservative overall risk appetite, stable funding profile, the structure of its network and affiliates and its liquidity management policies mean Fitch believes Arab Bank is able to mitigate risks to its credit profile associated with its domicile, but cannot completely offset them. Arab Bank’s IDRs are not capped by Fitch’s view of Jordanian sovereign risk, but are linked to it.
“The bank’s profitability is currently sound (9M13 operating ROAE of 13%, for example) and consistent, but Fitch considers it vulnerable to downside risks given the uncertain operating environment in some of the bank’s main markets.”