Bank Al Etihad – Ratings Affirmed

(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 Al Etihad (BAE) at ‘BB-’ and ‘B’, respectively. The LT FCR Outlook remains Stable. At the same time, CI Ratings has affirmed BAE’s Bank Standalone Rating (BSR) of ‘bb-’ with a Stable Outlook, Core Financial Strength (CFS) rating of ‘bb+’ and Extraordinary Support Level (ESL) of Moderate.

The BSR is derived from a CFS rating of ‘bb+’ and an Operating Environment Risk Anchor (OPERA) of ‘bb-’ (indicating moderate risk), and is constrained by Jordan’s sovereign ratings. While BAE’s ESL is Moderate, there is no uplift for the BSR as the latter is already at Jordan’s sovereign LT FCR level (‘BB-’/ Stable).

On 12 May 2025, BAE and Investbank (IB) (rated ‘BB-’/‘B’/Stable by CI) announced that their respective Boards of Directors had approved the acquisition by BAE of 100% of IB’s share capital via a share swap. The transaction will be executed by way of newly issued shares allocated in full to IB’s shareholders in exchange for their existing holdings. This structure effectively results in the merger of IB into BAE. During separate Extraordinary General Assembly Meetings (EGMs) held by both banks on 25 June 2025, BAE and IB received their respective shareholders’ approval to proceed with the merger which is now subject to approval by the Central Bank of Jordan (CBJ) – expected to be forthcoming. Post acquisition BAE will become Jordan’s second largest bank on a consolidated total assets basis. IB’s total assets were JOD2.1bn in 2024, and its overall risk profile is considered to be satisfactory. We expect the acquisition to be a credit neutral event.

BAE’s CFS is supported by its strong franchise and growing market presence (6.9% market share of loans and 7.5% of deposits at end-2024), including a good and expanding Islamic banking franchise through its local subsidiary Safwa Islamic Bank (SIB), (rated ‘BB-’/‘B’, Stable by CI). The latter provides operational and revenue diversification. Also supporting the CFS is the Bank’s good funding base and liquidity metrics, sufficient asset quality amidst soft market credit conditions, and consistent operating profit performance. The CFS is constrained by elevated provisioning charges which in turn weigh on net profitability, and by concentrations in both the corporate loan book and Jordanian sovereign securities. The CFS is also constrained by the Bank’s tight CAR, though immediate capital needs have been met following the Tier II subordinated debt raised at end-Q2 25, with a further modest improvement anticipated post-merger with IB. The Bank’s ratings also reflect the structurally challenging operating environment in Jordan, marked by elevated credit and geopolitical risks.

OPERA takes into account both current and projected economic and financial conditions in Jordan, as well as the strengths and weaknesses of the banking sector. The assessment reflects the increase in foreign exchange reserves and moderate coverage of short-term external debt on a remaining maturity basis. It also takes into account Jordan’s track record of navigating persistent external pressures, including elevated geopolitical risks and regional instability. At the same time, the assessment factors in the country’s continued reliance on capital inflows to finance its chronic current account deficit, limited monetary policy flexibility, and significant socioeconomic challenges. The banking sector remains well regulated, supported by strong capital and liquidity buffers, and has shown notable resilience in a difficult operating environment. Despite high exposure to the sovereign, asset quality remains acceptable, with the sector-wide NPL ratio at 5.6% as of December 2024.

CI views BAE as a well-managed institution pursuing a clear, broad-based strategy supported by a diversified banking model encompassing both conventional and Islamic operations. Its consolidated structure is anchored in the parent bank’s corporate and retail banking platform, complemented by the independently managed SIB, which focuses on Shari’a compliant retail and public sector clients. Strategically, BAE has positioned itself as a consolidator within Jordan’s fragmented banking sector, with the aim of emerging as a stronger pillar in the national financial system.

Despite credit pressures, we assess BAE’s loan asset quality to have remained adequate in 2024. NPL formation was elevated, but loan book growth tempered the reported deterioration in the NPL ratio. Nevertheless, the Bank maintained a prudent provisioning stance, maintaining full loan loss reserve coverage throughout the year while its extended NPL coverage stood at over 300%. Q1 25 figures point to some signs of stabilisation in asset quality metrics. As credit conditions have yet to fully recover however, loan asset quality pressures in the system may persist. In common with other Jordanian banks, non-loan credit risk arises from large exposures to government securities, which although a structural feature of local banking continues to weigh on BAE’s ratings.

Core profitability is good, underpinned by recuring income streams. Specifically in the context of its domestic focus, BAE maintains a well-diversified revenue base across conventional and Islamic operations as well as multiple business segments, supporting the quality and stability of earnings. In 2024, SIB contributed 42% of pre-provision consolidated income, broadly in line with its share of consolidated assets. Consolidated pre-provision profitability metrics have remained stable and in line with sector averages. However, ROAA continues to be moderate, weighed down by persistently high provisioning levels. This is likely to persist in the short term in the face of ongoing high credit risk in the system.

BAE’s ratings are supported by its sound funding and liquidity profile. Customer deposits fund just under 80% of the balance sheet and are largely composed of granular retail deposits sourced through the broad branch networks of both its conventional and Islamic operations. Depositor concentration is in line with industry norms and is driven in part by sizeable deposits from GREs, which are routinely rolled over at maturity. Reliance on wholesale funding remains limited, consisting mainly of concessional facilities from the central bank and international institutions tied to targeted social financing programmes. Meanwhile liquidity is comfortable, with key ratios remaining sound, reflecting sizable placements with the central bank and a net lender interbank position, as well as substantial holdings of government securities (including GRE sukuks held by SIB). Although the latter are not listed on an active market, they are repo eligible with the CBJ, and constitute an important source of liquidity.

CI assesses that the Bank’s regulatory total CAR at the current level limits its flexibility for organic growth and offers modest headroom above regulatory thresholds to absorb unexpected losses. Nonetheless, immediate capital needs have been met with the raising of USD30mn Tier II subordinated debt at end-Q2 25 – adding ca 50 basis points to total CAR. A further modest improvement is anticipated post-merger with IB (due to the latter’s higher CAR and leverage ratio). It is noted that BAE’s total CAR became subject to the additional 2% capital buffer regulatory requirement in accordance with CBJ’s prescribed rule for cross-border operations. This came into effect following the Bank’s activation of a single branch in Iraq during 2024. It is understood that, further to the recent subordinated debt increase, the Bank intends to address its longer-term capital needs as part of its strategic planning within the context of the current higher total CAR regulatory requirement.

Rating Outlook

The Outlook for the Bank’s LT FCR and BSR is Stable, indicating that the ratings are unlikely to change over the next 12 months. This reflects our view that the Bank is expected to maintain its current risk profile post-acquisition and that sovereign ratings will remain at current levels.

Rating Dynamics: Upside Scenario

Although unlikely, the LT FCR and BSR could be upgraded, if there is a similar action on Jordan’s sovereign ratings and a significant improvement in the operating environment.

Rating Dynamics: Downside Scenario

Although not our current expectation, the LT FCR and BSR Outlook could be lowered were there to be a similar action on the Jordanian sovereign or if the OPERA deteriorated significantly. The Bank’s BSR could come under pressure if recent improvements in its regulatory CAR are offset by rapid growth in risk-weighted assets or by unexpected losses that push the CAR close to the regulatory minimum.
 
Contact

Primary Analyst: Stathis Kyriakides, Senior Credit Analyst; E-mail: ...
Secondary Analyst and Committee Chairperson: Morris Helal, Senior Credit Analyst

About the Ratings

The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.

The following information sources were used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2020-24. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. 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 methodology used to determine the ratings is the Bank Rating Methodology, dated 3 April 2019 (see Information on rating scales and definitions, the time horizon of rating outlooks, and the definition of default can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at

This rating action follows a scheduled periodic (annual) review of the rated entity. Ratings on the entity were first released in September 2023. The ratings were last updated in July 2024. The ratings and rating outlook were disclosed to the rated entity prior to publication and were not amended following that disclosure. The ratings have been assigned or maintained at the request of the rated entity or a related third party.

Conditions of Use and General Limitations

The information contained in this publication including opinions, views, data, material and ratings may not be copied, distributed, altered or otherwise reproduced, in whole or in part, in any form or manner by any person except with the prior written consent of Capital Intelligence Ratings Ltd (hereinafter “CI”). All information contained herein has been obtained from sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error or other factors by third parties, CI or others, the information is provided “as is” and CI and any third-party providers make no representations, guarantees or warranties whether express or implied regarding the accuracy or completeness of this information.

Without prejudice to the generality of the foregoing, CI and any third-party providers accept no responsibility or liability for any losses, errors or omissions, however caused, or for the results obtained from the use of this information. CI and any third-party providers do not accept any responsibility or liability for any damages, costs, expenses, legal fees or losses or any indirect or consequential loss or damage including, without limitation, loss of business and loss of profits, as a direct or indirect consequence of or in connection with or resulting from any use of this information.

Credit ratings and credit-related analysis issued by CI are current opinions as of the date of publication and not statements of fact. CI’s credit ratings provide a relative ranking of credit risk. They do not indicate a specific probability of default over any given time period. The ratings do not address the risk of loss due to risks other than credit risk, including, but not limited to, market risk and liquidity risk. CI’s ratings are not a recommendation to purchase, sell, or hold any security and do not comment as to market price or suitability of any security for a particular investor.

The information contained in this publication does not constitute investment or financial advice. As the ratings and analysis are opinions of CI they should be relied upon to a limited degree and users of this information should conduct their own risk assessment and due diligence before making any investment or other business decisions.

Copyright © Capital Intelligence Ratings Ltd 2025

MENAFN02072025002960000411ID1109752024