Tadhamon International Islamic Bank - Ratings Downgraded

(MENAFNEditorial) 14th April 2015

Tadhamon International Islamic Bank's Ratings Downgraded

Capital Intelligence (CI), the international credit rating agency, today announced that it has downgraded the ratings of Tadhamon International Islamic Bank's (TIIB), based in Sana'a, Yemen. TIIB's financial Strength Rating (FSR) is downgraded to 'B' from 'B+', and the Outlook for the FSR is downgraded to 'Negative'. The Outlook for TIIB's Foreign Currency Ratings – which are affirmed at 'C+' Long-Term and 'C' Short-Term – are downgraded to 'Negative' as is the case with all CI-rated Yemeni banks, reflecting the current turmoil and severe economic weakness. The Support Rating is maintained at '4', reflecting the limited capacity of support.

The rating action reflects the severe deterioration in the country's operating environment and rapidly weakening economic situation, as well as the attendant risk to the Bank's financials. TIIB is the main Islamic financial institution in Yemen, majority owned by the domestic group Hayel Saeed Anam. Although its exposure to Yemen and the government specifically through treasury bills is lower than peer banks, TIIB faces similar challenges. Non-performing loans (NPLs) and assets are also expected to rise, which will require additional provisioning – thereby hitting profitability.

Infighting over control of power in Yemen has significantly escalated. The country's economy is in increasingly dire shape and at risk of completely collapsing. The main conflict is between forces loyal to the beleaguered President, Abdrabbuh Mansour Hadi, and the rebels known as Houthis – who have forced Mr. Hadi to flee the country.

The Houthis, a Zaydi Shiite group from the north of the country, have effectively controlled the capital, Sana'a, since late 2014, and seized the presidential palace and Hadi's private residence along with the headquarters of Yemen's two main intelligence agencies in January 2015. More recently, the group has advanced to Yemen's second biggest city, Aden. Over the past few weeks, fighter jets from a coalition of Sunni Arab militaries have been bombarding military installations across Yemen as part of a Saudi-led campaign to dislodge the Houthis.

In regard to the banking system, the economy may weaken to the extent that the financial sector does not have any hard currency. After seizing control of key ministries, serious concerns exist that the government may be unable to pay salaries in the next two to three months. Yemen needs 84 billion rials (USD390mn) a month for salaries for 1.2 million civil servants and military personnel. Another threat is a reduction in aid from Saudi Arabia, whose donations have helped make up for the decline in oil exports, Yemen's main source of dollars.

Yemen's security forces have split loyalties, with some units backing Mr. Hadi and others the Houthis and Mr. Hadi's predecessor Ali Abdullah Saleh – who has remained politically influential. Mr. Hadi is also supported in the predominantly Sunni south of the country by militia known as Popular Resistance Committees and local tribesmen.

Both President Hadi and the Houthis are opposed by al-Qaeda in the Arabian Peninsula (AQAP), which has staged a number of deadly attacks from its strongholds in the south and south-east. The position is complicated by the emergence in late 2014 of a Yemen affiliate of the jihadist group Islamic State, which seeks to eclipse AQAP and claims it carried out a series of suicide bombings in Sana'a in March 2015.

Recent figures on bank withdrawals are hard to come by in Yemen, but there are signs that cash is rapidly drying up. A recent central bank report stated that Yemen's income from oil exports declined by 37% in 2014 to USD1.67 billion. As well as falling prices, the decline is attributed to frequent attacks on oil pipelines by tribesmen. The exchange rate, held at about 215 rials to the dollar in recent years, is now at risk.
 
TIIB – a Yemeni joint-stock company – was established under the name of Yemen Islamic Bank for Investment and Development in 1995. The Bank converted to Islamic banking and changed its name to TIB in 1996 and at the EGM on 20 March 2002 to the present style. The majority of shares are held by directors, associates and member companies of the Hayel Saeed Anam (HSA) international group of companies, which is the largest corporation in Yemen. Total assets of the Bank stood at YER525 billion (USD2.4 billion) at end 2013.

CONTACT

Primary Analyst
Darren Stubing
Senior Credit Analyst
Tel: +357 2534 2300
E-mail: darren.stubing@ciratings.com

Secondary Analyst
Peter McFerran
Senior Credit Analyst
E-mail: peter.mcferran@ciratings.com

Rating Committee Chairman
Morris Helal
Senior Credit Analyst



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 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.

The rating has been disclosed to the rated entity and released with no amendment following that disclosure. Ratings on the issuer were first released in February 2001. The ratings were last updated in January 2015.

The principal methodology used in determining the ratings is Bank Rating Methodology. The methodology, the meaning of each rating category, the time horizon of rating outlooks and the definition of default, as well as information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com. 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 http://cerep.esma.europa.eu.