(MENAFN- Capital Intelligence (Cyprus) Ltd) 25th September 2019
Arab National Bank’s LT FCR Affirmed with a Stable Outlook
Capital Intelligence Ratings (CI Ratings or CI), the international credit rating agency, today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) of Arab National Bank (ANB) at ‘A’ and adjusted the Short-Term Foreign Currency Rating (ST FCR) to ‘A1’ from ‘A2’. At the same time, CI Ratings has assigned to the Bank a Bank Standalone Rating (BSR) of ‘bbb+’, a Core Financial Strength (CFS) rating of ‘bbb+’ and an Extraordinary Support Level (ESL) of High. The Outlook for the LT FCR and BSR is Stable.
ANB’s Financial Strength Rating and Support Rating have been withdrawn in line with the changes to CI’s Bank Rating Methodology announced in April 2019. CI will phase out FSRs and Support Ratings for all rated banks this year.
The Bank’s LT FCR is set two notches above the BSR to reflect the high likelihood of timely and sufficient extraordinary support from the government if needed. Although the willingness of the government to support non-government banks has not been tested recently, we would nevertheless expect financial assistance to be forthcoming if required. The authorities have a strong track record of supporting banks and have the financial capacity to provide assistance in the event of stress (the sovereign’s current ratings are ‘A+’/‘A1’/Stable).
ANB’s ST FCR has been adjusted, in line with the mapping between LT and ST FCRs under CI’s revised methodology.
The Bank’s BSR is derived from a CFS rating of ‘bbb+’ and an OPERA of ‘bbb’. The CFS is supported by the Bank’s good asset quality, comfortable liquidity, good profitability at both the operating and net levels, and by sound capital adequacy. The rating is also supported by a well-established franchise and by the support, in terms of best practice policies and procedures, from major shareholder Arab Bank. The main constraining factors are related to some limitations in the disclosure of the published financial statements and the potential impact of what continues to be a challenging economic environment. There is also the possibility that regional geopolitical tensions may impact the operating environment in the future.
While all financial metrics are more than satisfactory, asset quality is an area of particular strength. Despite credit pressures that have led to rises in NPL ratios across the sector, a conservative credit culture and an aggressive approach to writing off bad debt has allowed ANB to keep the NPL ratio stable and at a level well below the peer group average in 2018 and into H1 2019. Nonetheless, the relatively high level of potential problem loans at end 2018 is a concern as it may translate to higher rates of NPL formation in the near term. Lack of disclosure in the H1 2019 accounts hampers analysis of asset quality trends since the end of last year.
Although some funding and liquidity ratios lag the sector averages, they generally remain satisfactory to good in global terms, supported by a deep customer franchise and a high level of liquid assets. Profitability at the operating level is very good, while ROAA lags a little reflecting a conservative approach to provisioning (including overprovision for Zakat charges), and therefore a higher cost of credit. Despite this, ROAA is satisfactory in global terms.
Similarly, the Bank’s CAR – which is somewhat below the peer group average – remains sound by global standards, as do the other capitalisation metrics. Although reserves were adversely affected in 2018 by IFRS 9 adoption, this was more than offset by significant surplus in Zakat provision following settlement for legacy Zakat charges. The rate of internal capital generation is sound, supported by a moderate dividend pay-out ratio. CI expects ANB’s CARs to remain very sound given the low NPL ratio together with more than full loan loss reserve coverage.
CONTACT
Primary Analyst
George Panayides
Senior Credit Analyst
E-mail: george.panayides@ciratings.com
Tel: +357 2526 0000
Secondary Analyst
Rory Keelan
Senior Credit Analyst
E-mail: rory.keelan@ciratings.com
Rating Committee Chairman
Morris Helal
Senior Credit Analyst
About the Ratings
The ratings have been initiated by CI. The issuer did not participate in the rating process. The information source used to prepare the credit ratings is public information. CI may also have used financial information from credible, independent third-party data providers. CI had access to the published financial statements of the issuer for the purpose of the rating, but did not have access to the issuer’s internal accounts, management and other relevant internal documents. Nevertheless, CI considers the quality of information available on the issuer to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.
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