(Repeat for additional subscribers)
Jan 9 (The following statement was released by the rating agency)
Fitch Ratings has downgraded Arab Bank PLC's (Arab
Bank) 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. A full list of rating actions is at the end of
KEY RATING DRIVERS - IDRs and VR
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
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.
RATING SENSITIVITIES - IDRs and VR
The Negative Outlook reflects residual risks to Arab Bank's credit profile
arising from its domicile and the ratings would be downgraded if Fitch's opinion
of Jordan's creditworthiness weakened. A change in Fitch's assessment of the
bank's ability to offset sovereign-related risks (eg banking sector intervention
risk or transfer and convertibility risk) or an increase in economic and
political risks in the broader MENA region could also result in downward
pressure on the bank's IDRs. Downward pressure from internal factors (ie, a
material increase in risk appetite) is unlikely, in Fitch's opinion.
Conversely, the Outlook would likely be revised to Stable if Fitch's opinion of
Jordanian sovereign risk stabilised.
RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating and Support Rating Floor reflect Fitch's opinion that support
for Arab Bank from the Kingdom of Jordan, if required, is possible, but given
Arab Bank's size, cannot be relied upon. The bank has several core shareholders,
but it is difficult to assess their willingness and ability to provide support
at all times.
RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
As Fitch does not factor in any support from the Jordanian sovereign, the
Support Rating and Support Rating Floor are at their lowest levels. Fitch
considers these are unlikely to change.
The rating actions are as follows:
Arab Bank PLC:
Long-term IDR downgraded to 'BBB-' from 'A-'; removed from RWN; Outlook Negative
Short-term IDR downgraded to 'F3' from 'F1'; removed from RWN
Viability Rating downgraded to 'bbb-' from 'a-'; removed from RWN
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'No Floor'