Global Arab Network | CI: Arab Banking Corporation rating lowered and put on Negative Outlook

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CI: Arab Banking Corporation rating lowered and put on Negative Outlook

Global Arab Network - Dina James

Tuesday, 19 April 2011 13:42

CI: Arab Banking Corporation rating lowered and put on Negative Outlook

Global Arab Network - Capital Intelligence (CI), the international credit rating agency, announced today that it has lowered Arab Banking Corporation (ABC)’s Long-Term Foreign Currency rating to BBB+ from A- and affirmed the Short-Term Foreign Currency Rating of A2.

The Outlook for the Long-Term Foreign Currency rating has been revised to ‘Negative’ from ‘Stable’. At the same time the Bank’s Financial Strength rating of BBB+ was affirmed while the Support Level was adjusted to 3 from 1. ABC is currently 59.4% owned by the Central Bank of Libya (CBL) and 29.7% by Kuwait Investment Authority (KIA), both founding shareholders.

While neither ABC nor any of its subsidiaries are subject to the asset freezes specified in the UN and US sanctions, which seek to block the assets of various individuals and entities in Libya and the entities controlled by them, CI has assessed that there is considerable uncertainty in the current environment about the ability and willingness of the largest shareholder CBL to provide timely financial support to ABC in case of need.

That said, it is noteworthy that the founding Libyan shareholder CBL (as well as KIA) has been exceptionally supportive over the past having repeatedly subscribed to all rights issues. In December 2010, CBL raised its stake to 59.4% from 41.6%. KIA recently reaffirmed its strong support to ABC as a strategic shareholder.

While ABC is a Bahraini wholesale bank supervised and regulated by the Central Bank of Bahrain, its asset exposure to Libya (and Bahrain) is minimal. The asset base is diversified across the GCC countries (including Saudi Arabia, Kuwait and United Arab Emirates), North America, Western Europe, and to lesser extent Latin America and Asia. CI’s assessment of ABC’s credit risk is based on the fact that the majority of its total assets, funding and liquidity, and earnings are in jurisdictions outside Libya. The events in Libya therefore are not likely to have any significant impact on ABC’s financial profile.

The Bank is solidly capitalized and asset quality is sound. While liquidity is ample, ABC continues to have significant reliance on wholesale funding. Notwithstanding the ongoing challenges associated with execution of the new business strategy, ABC grew its operating and net profit for a second year in a row in 2010.

ABC’s principal activities are in international wholesale commercial banking and trade finance, foreign exchange and money-markets, and international capital markets. The Bank remains focused on the facilitation of trade and investment flows between Arab countries and the rest of the world; and the generation, through its international network of banking subsidiaries, of local deposit-taking, lending and other banking business.

Through branches, subsidiaries, affiliates and other offices, ABC has a presence in a total of 21 countries in Asia, Europe, North America, Africa and South America. At end 2010 total assets were USD28.1 billion and total capital USD3.86 billion.

Global Arab Network

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