(The following statement was released by the rating agency)
Sept 17 -
Summary analysis — Al Baraka Banking Group B.S.C. ———————— 17-Sep-2012
CREDIT RATING: BBB-/Negative/A-3 Country: Bahrain
Primary SIC: Commercial banks,
Credit Rating History:
Local currency Foreign currency
21-Mar-2007 BBB-/A-3 BBB-/A-3
Ratings Score Snapshot
Issuer Credit Rating BBB-/Negative/A-3
Business Position Strong (+1)
Capital and Earnings Moderate (0)
Risk Position Strong (+1)
Funding and Liquidity Average
and Strong (0)
GRE Support 0
Group Support 0
Sovereign Support 0
Additional Factors 0
Major Rating Factors
— Strong business position supported by sound geographic diversification in earnings and stable business performance.
— High liquidity buffer and low loan leverage.
— A granular loan book with a good degree of geographic diversification.
— Ongoing social tensions, political conflicts, and resulting economic challenges in its operating environment.
— Internal capital generation is insufficient for the group’s desired growth.
— High exposure to the Egyptian sovereign (in local currency), as well as to the cyclical construction sector of its Turkish and Jordanian subsidiaries.
The negative outlook on Al Baraka Banking Group B.S.C. (ABG) reflects the deterioration in the operating environment of some countries where the group operates, and holds high exposure to the sovereign, such as in Egypt, as well as the pressure on the bank’s capitalization due to its solid growth. This means that the group’s modest earnings capacity may not be sufficient to sustain a risk-adjusted capital (RAC) ratio before adjustments above 5.0% over time, especially if further deterioration in our sovereign ratings or economic risk scores take place in ABG’s key markets. Additionally, Standard & Poor’s Ratings Services’ RAC ratio does not capture single-name exposure to the sovereign, which is material at ABG’s Egyptian unit. Should such exposure not decrease in coming quarters, we could revise our assessment on “risk position” to adequate. In a worst-case scenario where the situation in Egypt deteriorated dramatically, we would evaluate the direct impact on the group’s capitalization and potential contagion risk on its franchise and liquidity position.
Additionally, any appearance of double leverage at the group level would very likely trigger a negative rating action as debt repayments would become highly reliant on the upstreaming of dividends from a limited number of subsidiaries, whose creditworthiness we assess at below the overall group credit profile of ‘bb+’.
We could revise the outlook to stable if we conclude that the group demonstrates strong resilience in asset quality and if we become confident that it is able to maintain an estimated RAC ratio before adjustments above 5.0% on a sustainable basis. A major improvement in the credit conditions of the group’s operating environment—albeit a remote scenario—could also trigger an outlook revision.
Related Criteria And Research
— Jordan Islamic Bank, Aug. 31, 2012
— Albaraka Turk Katilim Bankasi AS, Aug. 27, 2012
— Research Update: Rating On Egypt Affirmed At ‘B’; Off Watch; Outlook Negative, Aug. 23, 2012
— BICRA On Egypt Maintained At Group ‘8’, March 20, 2012
— Banks: Rating Methodology And Assumptions, Nov. 9, 2011
— Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
— Bank Capital Methodology And Assumptions, Dec. 6, 2010