TEXT-Fitch affirms Jordan Islamic Bank ratings

Wed Jul 25, 2012 8:16pm IST

(The following statement was released by the rating agency)
    July 25 - Fitch Ratings has affirmed Jordan Islamic Bank's (JIB) 
Long-term Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook, Short-term
IDR at 'B' and Viability Rating at 'bb-'.  A full list of rating actions is at 
the end of this rating action commentary.

RATING DRIVERS AND SENSITIVITIES - IDRs and VR

JIB's IDRs are driven by the Viability Rating. The affirmation reflects the 
bank's solid domestic franchise (JIB is the domestic market leader in Islamic 
banking in Jordan), strong liquidity and healthy profitability. The ratings also
take into account the difficult domestic (and regional) operating environment, 
high financing book concentrations and capitalisation that typically lags the 
sector average. 

Pre-impairment operating profit continued to grow in 2011 and Q112, supported by
stronger net financing income - the Islamic equivalent of net interest income - 
and despite higher operating costs. Nonetheless, impairment charges rose in line
with increased levels of non-performing financing, putting pressure on net 
earnings. Fitch expects broadly stable profitability in 2012, as impairment 
charges remain elevated and greater market competition compresses margins. 

JIB's non-equity funding consists entirely of (stable) customer deposits. The 
bank has a sound deposit franchise among smaller retail depositors - 
accordingly, depositor concentration is low. Liquidity is strong, supported by a
healthy financing/deposit ratio (end-Q112: 63%) and a reasonable stock of liquid
assets.

Asset quality has deteriorated (relative to end-2009) in line with the slowdown 
in the operating environment, but JIB's indicators have remained manageable to 
date, comparing well with the sector average. Specific reserves coverage of 
non-performing exposures was moderate (end-Q112: 56%).

Capital adequacy is satisfactory in light of the bank's risks. The Fitch core 
capital ratio (FCCR) stood at 23.3% at end-Q112. Capital ratio calculations are 
based on Islamic Financial Services Board (IFSB) standards, whereby 
risk-weighted assets are significantly lower than under Basel II. Recalculated 
as per Basel II, the FCCR would be substantially lower. JIB's capitalisation has
typically lagged peers.  

Deterioration in the operating environment, asset quality and/or capitalisation 
could have a negative impact on the bank's IDRs and VR. Conversely, upside 
potential depends on significant positive developments in the local economy. 

RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

JIB's Support Rating and Support Rating Floor reflect the limited probability of
support from the Jordanian authorities, notwithstanding the government's 
supportive stance towards the domestic banking system. While Fitch believes that
Jordan has a strong propensity to support JIB, potential support is limited by 
constraints on its ability to do so.

Changes in Fitch's perception of risks relating to Jordan, in either direction, 
could affect the bank's Support Rating or Support Rating Floor.

The rating actions are as follows: 

Long-term IDR affirmed at 'BB-'; Outlook Stable
Short-term IDR affirmed at 'B'
Viability Rating affirmed at 'bb-'
Support Rating affirmed at '4'
Support Rating Floor affirmed at 'B+'

 (Caryn Trokie, New York Ratings Unit)
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