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Fitch Affirms Union de Banques Arabes et Francaises at 'BBB+'; Outlook Stable
February 6, 2014 / 5:32 PM / in 4 years

Fitch Affirms Union de Banques Arabes et Francaises at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) PARIS/LONDON, February 06 (Fitch) Fitch Ratings has affirmed Union de Banques Arabes et Francaises (UBAF)'s Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook and its Viability Rating (VR) at 'bbb-'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRs AND SUPPORT RATING UBAF's IDRs and Support Rating are driven by potential support from Credit Agricole Corporate and Investment Bank (CACIB, A/Stable; 47% shareholder), part of Credit Agricole (CA; A/Stable). Fitch believes that timely financial support would be provided by CACIB, or ultimately by CA, if required, as CACIB is UBAF's designated reference shareholder. Fitch's assessment of support also factors in CA's history of support and UBAF's high integration with CACIB in terms of management and risk control. The two-notch difference between CACIB's and UBAF's Long-term IDRs reflects Fitch's opinion that UBAF is of limited importance to CACIB. The Stable Outlook on UBAF's Long-term IDR mirrors that on CACIB and CA. RATING SENSITIVITIES - IDRs AND SUPPORT RATING UBAF's IDRs and Support Rating are sensitive to any change in the bank's strategic importance to, or integration with CACIB, which is not Fitch's expectation. Any rating action on CACIB's Long-term IDR would trigger rating action on UBAF's Long-Term IDR. KEY RATING DRIVERS - VR The main drivers of UBAF's VR are the benefits in terms of risk management and governance stemming from its strong integration with CACIB and business access to the MENA region facilitated by the bank's ownership structure, which includes a large number of MENA shareholders. UBAF's VR also reflects its resilient asset quality despite the heightened political and economic risks in the MENA region, conservative credit risk management at the expense of profitability and prudent liquidity policies, but also its modest size and country and counterparty concentrations. UBAF's business is supported by its MENA shareholders. However, the reduction of trade finance business due to difficult operating environments in UBAF's important countries of operation (such as Libya, Syria or Egypt), tight credit risk provisioning criteria, stricter liquidity requirements (since 2012) and low interest rate environment put pressure on the bank's operating profit in 2013. UBAF's asset quality is adequate. Non-performing loans (NPLs) materially reduced in 2013, as the bank sold old fully-reserved non-performing exposures. Net NPLs were estimated at a low 2% of Fitch core capital at end-2013. In addition, the bank maintains a comfortable buffer of general provisions against credit risk. UBAF's liquidity is satisfactory. It is supported by large money market placements (largely with CACIB). Its flexible balance sheet structure, which is driven by self-liquidating short-term transactions, reduces refinancing risk. Fitch views UBAF's capitalisation (Fitch core capital ratio estimated at 26% at end-2013) as only adequate given concentrations on the asset side, material exposure to volatile markets, and the aggressive dividend-pay-out ratio. RATING SENSITIVITIES - VR The bank's VR could be downgraded if there was a material deterioration in asset quality or operational losses that could erode the bank's capital position. A shift toward higher risk appetite, greater asset concentrations, less stringent liquidity policies and looser operational and credit risk controls could also trigger a downgrade. However, this is not Fitch's expectation. Greater asset liability mismatch, increased funding concentration and significantly lower available liquidity could also put pressure on the bank's VR. Upside potential for UBAF's VR is limited given its niche focus and exposure to volatile markets. The rating actions are as follows: Long-term IDR affirmed at 'BBB+'; Outlook Stable Short-term IDR affirmed at 'F2' Support Rating affirmed at '2' Viability Rating affirmed at 'bbb-' Certificate of Deposit: affirmed at 'F2' Contact: Primary Analyst Sonia Trabelsi Director +33 0144 299 129 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Keranka Dimitrova Associate Director +44 20 3530 1223 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 44 29 91 74 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, and 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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