Bank of Baghdad − Ratings Affirmed and Withdrawn

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Bank of Baghdad (BoB) at ‘B’ and ‘B’, respectively. The LT FCR Outlook is Stable. Concurrently, CI Ratings has affirmed BoB’s Bank Standalone Rating (BSR) of ‘b-’ with a Stable Outlook, Core financial Strength (CFS) rating of ‘bb-’, and Extraordinary Support Level (ESL) of Moderate. At the same time, CI Ratings has withdrawn the ratings assigned to BoB at the request of the Bank.

CI has also affirmed and withdrawn the Bank’s Long- and Short-Term Ratings on the Iraq National Scale of ‘iqA-’ and ‘iqA2’, respectively, with a Stable Outlook. These are supported and constrained by the same factors as the CFS as outlined below.

BoB’s LT FCR is set one notch above the BSR to underscore the moderate likelihood of extraordinary support from its parent Jordan Kuwait Bank (JKB). JKB is a longstanding member of the Kuwait-based prominent KIPCO Group. CI considers JKB − and more broadly the KIPCO group – to have the willingness and capacity to provide extraordinary support on the grounds of BoB’s significant contribution to the Jordanian parent’s earnings and sound track record.

The Bank’s BSR is derived from a CFS rating of ‘bb-’ and the constraints imposed by Iraq’s Operating Environment Risk Anchor (OPERA) of ‘c+’. The sustained increase in both operating and net profitability to strong levels in 2023, as well as the improving loan-loss reserve cover for NPLs, support the CFS. The CFS rating is also underpinned by the financial and management backing from JKB, strong liquidity funded by an expanding customer deposit base, and good total CAR and high Tier 1 ratio including effective capital flexibility. The principal factors constraining the rating relate to BoB’s high credit risk profile (as is the case with peer banks), reflecting Iraq’s challenging operating environment including geopolitical risk factors (despite high oil prices), and the large concentrations seen in assets and, to lesser extent, customer deposits. Iraq’s high systemic liquidity risk and weak regulatory and supervisory framework (though improving) are also credit challenges.

Iraq’s OPERA is at a level indicative of a high degree of risk. The OPERA takes into account the volatility of the economy and underlying structural and fiscal weaknesses, as well as significant socio-economic imbalances and deficiencies in the country’s political and institutional frameworks. Although the Iraqi economy continued to recover moderately in 2023 from the economic fallout of the pandemic – buoyed by favourable oil prices − credit risk remains elevated. OPERA also reflects the challenges inherent in a banking sector that is small, underdeveloped, and dominated by financially weak state-owned banks. The latter elevate banking systemic risks. Both the legal system and corporate governance standards in Iraq are also weak.

Contact

Primary Analyst: Morris Helal, Senior Credit Analyst; E-mail: ...
Secondary Analyst & Committee Chairperson: Rory Keelan, Senior Credit Analyst

About the Ratings

The credit ratings outstanding at the time of withdrawal were based on public information and information provided by the rated entity during the last annual review in August 2023. Ratings on the entity were first released in July 2020 and last updated in August 2023. CI considers the quality of information available on the rated entity 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.

The principal methodologies used to determine the ratings are the Bank Rating Methodology, dated 3 April 2019 (see and and the National Scale Ratings Criteria for Iraq, dated 15 March 2020 ( Information on rating scales and definitions, the time horizon of rating outlooks, and the definition of default can be found at CI’s policy on unsolicited ratings including an explanation of the colour coding of credit rating symbols can be found at the same location. Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at

The decision to withdraw the ratings has been disclosed to the rated entity and was taken at the request of the rated entity.

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