Global Arab Network | Fitch: Bank of Jordan - Stable funding and good liquidity

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Fitch: Bank of Jordan - Stable funding and good liquidity

Global Arab Network - - Gamal Ragay

Tuesday, 25 May 2010 10:01

Fitch Ratings has today affirmed Bank of Jordan's Long-term Issuer Default Rating (IDR) at 'BB-', Short-term IDR at 'B', Individual Rating at 'C/D', Support Rating at '3' and Support Rating Floor at 'BB-'. The Outlook on the Long-term IDR remains Stable.

Bank of Jordan's ratings are constrained by the relatively weak operating environment in Jordan. The ratings reflect some deterioration in asset quality caused by the more difficult economic conditions in Jordan (and the Gulf region). The ratings also reflect the bank's domestic franchise, resilient core profitability, stable funding, and good liquidity.

Bank of Jordan's net profit was down about 15% yoy in Q110 following a 23% drop in 2009. Core net interest and fee income rose strongly in Q110, but net profit was constrained by high loan impairment charges. Loan growth slowed in 2009 as economic growth declined and banks became increasingly cautious about lending. Bank of Jordan's loan growth picked up slightly in Q110 to around 5%.

Asset quality ratios deteriorated somewhat in 2009, reflecting the more difficult operating environment. Impaired loans rose to 7.7% of the loan book at end-2009 (5.8% at end-2008). Impaired loans were mostly in the corporate and smaller business segments and were spread across various sectors. Despite the slowdown in the real estate market, lending to this sector does not seem to be problematic and loan quality held up well. The bank's reserve coverage dropped to 64%, below its historical average.

Bank of Jordan's balance sheet remains very liquid with a loan/deposit ratio of 60%. Almost all of the bank's assets aside from loans consist of cash, interbank balances and government securities. Capital ratios are weaker than those of many local peers. Bank of Jordan's total capital adequacy ratio at end-Q110 was 13.2% with a Tier I ratio of 12.6%.

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