TEXT-S&P revises Attijariwafa Bank otlk to stbl; afrms 'BB/B' rtgs

Wed Nov 21, 2012 8:33am EST

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(The following statement was released by the rating agency)

Nov 21 -

Overview

-- We now expect Morocco-based Attijariwafa Bank's (AWB) capitalization to remain fairly stable following the recent moderate capital increase, while we previously assumed a more significant rise.

-- As the Moroccan economy is slowing down, we have revised down our capital build-up projections for AWB and we now expect that improvement might only occur in the long term. We are therefore revising our outlook on AWB to stable from positive and affirming our 'BB/B' ratings.

-- The stable outlook balances AWB's solid business position and adequate funding and liquidity profile with its weak capitalization and ambitious geographic expansion strategy.

Rating Action

On Nov. 21, 2012, Standard & Poor's Ratings Services revised its outlook on Morocco-based Attijariwafa Bank (AWB) to stable from positive. At the same time, we affirmed our 'BB/B' long- and short-term counterparty ratings on the bank.

Rationale

The outlook revision reflects our revised projection of AWB's capitalization. We now anticipate that the bank will not achieve a significant increase of capital over the next 12-18 months. Growth prospects in the Kingdom of Morocco (foreign currency; BBB-/Negative/A-3, local currency; BBB/Negative/A-2) are slowing down, mirroring the economic difficulties in Europe, and this may constrain the bank's capacity to increase earnings and build up capital internally. We also believe that past expansion in sub-Saharan countries entails risks that require more capital than the less risky domestic operations, which should continue to represent a steady 80% of AWB's total assets in the medium term.

We now expect the bank's weak capitalization to only slightly improve in the near term, and do not assume a large capital increase under our base-case scenario. This translates into our projected risk-adjusted capital (RAC) ratio before adjustments for AWB of about 4.5% over the next 12-18 months. This projection takes into account that the bank's staff subscribed to a Moroccan dirham (MAD)2.1 billion capital increase in mid-2012.

Quality of regulatory capital is burdened by subordinated debt of MAD10 billion, which we do not take into account in our capital ratios, unlike the Moroccan regulator. Morocco's central bank increased the minimum capital adequacy ratio from 10% to 12% and Tier 1 ratio to 9% from June 2013. Like some other Moroccan banks, AWB has resorted to subordinated debt to bolster its regulatory capital over the last few years.

The ratings on AWB remain supported by the bank's leading business position and adequate liquidity profile.

The bank's stand-alone credit profile (SACP) is 'bb-' and the long-term rating is one notch higher than the SACP, reflecting our view of AWB's "high" systemic importance based on its dominant market share, and our assessment of the Moroccan government as "supportive" toward its banking sector.

Outlook

The stable outlook balances AWB's solid business position and adequate funding and liquidity profile with its weak capitalization and ambitious geographic expansion strategy.

We might upgrade the ratings on AWB if the bank's expansion strategy became less risky than we currently anticipate and reduced the risk of asset quality deterioration. An increase in capitalization beyond our expectations would also lead us to raise the bank's SACP and ratings. More specifically, a strengthening of the bank's capital, leading to a projected RAC ratio before adjustment of more than 5% on a sustainable basis, would have positive rating implications, all other things being equal. Abating pressure on the sovereign's creditworthiness, if economic conditions were to improve in Morocco, would be a prerequisite for a positive rating action on AWB.

A significant deterioration in asset quality, or a serious decline in the bank's core capitalization might cause us to reassess its risk position or capital and earnings and trigger a revision of the SACP. Given the difference between the local currency rating on Morocco and the bank's SACP, a lowering of the sovereign ratings would not trigger a rating action on AWB, all other factors remaining equal.

Ratings Score Snapshot

Issuer Credit Rating BB/Stable/B

SACP bb-

Anchor bb

Business Position Strong (+1)

Capital and Earnings Weak (-1)

Risk Position Moderate (-1)

Funding and Liquidity Average and adequate (0)

Support +1

GRE Support 0

Group Support 0

Sovereign Support 1

Additional Factors 0

Related Criteria And Research

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

Ratings List

Ratings Affirmed

Attijariwafa Bank

Certificate Of Deposit BB/B

Subordinated B+

Ratings Affirmed; CreditWatch/Outlook Action

To From

Attijariwafa Bank

Counterparty Credit Rating BB/Stable/B BB/Positive/B

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