The Support Rating is maintained at ‘3’, which reflects a high likelihood of adequate shareholder support in case of need.  All ratings continue to carry a ‘Negative’ Outlook. Both the FSR and FC ratings would come under significant pressure if the operating environment and sovereign risk situation in Egypt continue to deteriorate.

Notwithstanding heightened risks and the uncertain economic and political environment, the ratings continue to be driven by the Bank’s good liquidity, capitalisation and asset quality. The major rating constraints are the deterioration in operating conditions, the Bank’s ongoing low profitability and concentration risks.

In the past, Arab International Bank (AIB) tended to benefit from economic crises due to its special charter and its minimal exposure to the Egyptian economy. While the Bank fully maintains its offshore status, it is now more dependent on the Egyptian economy for its earnings as a result of its increased exposure to Egyptian credit risk. Although asset quality has been improving, a prolonged economic contraction is likely to lead to higher NPLs and provision charges.  Liquidity risks are augmented, since as a wholesale bank AIB is exposed to concentration on both sides of the balance sheet. However, the Bank’s liquidity remains strong, despite a lower level of customer deposits, as loans have also been cut back.  

AIB remains well capitalised following a substantial capital injection from core shareholders in 2009, which has raised capital adequacy to a good level. AIB has also been making good progress increasing net interest income. However, profitability remains low as AIB is precluded from operating in local currency.  This major factor constrains net interest margins.

AIB was established under international treaty by five Arab sovereigns in 1974 as an Egypt based offshore banking unit. The principal shareholders remain Arab Republic of Egypt and the State of Libya with a 38.76% shareholding each, followed by Qatar with 4.984%, Abu Dhabi with 12.503% and Oman with 2.49%. According to its statute, the Bank falls outside the supervision of the Central Bank of Egypt and is exempt from taxation and exchange controls, as well as auditing and accounting regulations pertinent to domestic banks. 

As it may not carry out transactions in EGP, AIB does not hold a portfolio of local currency treasury bills, so it invests its liquidity with local and foreign banks.  It also has a sizeable marketable investment portfolio. AIB owns 46.1% of Société Arabe Internationale de Banque (SAIB) as well as a 41.5% share in Suez Canal Bank. AIB also holds equity stakes in specific real estate or other business projects. The Bank operates six branches in Egypt, reflecting the predominantly wholesale nature of its business, but also gathers a substantial amount of customer deposits from individual clients.

Global Arab Network