Emerging markets rating agency Capital Intelligence has raised both the long-term foreign currency rating and domestic strength rating for Bank Al-Jazira (BAJ) of Saudi Arabia. The long-term foreign currency rating was raised from BBB- to BBB, while the short-term foreign currency rating of A3 was maintained.
The ratings compare to the sovereign ceiling for the Kingdom of Saudi Arabia, which has been set at A- long-term and A2 short-term. The domestic strength rating was also raised from BBB- to BBB, and a stable outlook appended.
In its announcement, the agency noted that the upgrades were made because of continued steady improvements in all aspects of the bank’s condition and performance. Capitalization remains strong and even if the bank were to fully provide for all of its non-performing loans its BIS ratio would still be very high.
Profitability, both at the operating level and after loan-loss provisions, continues to improve each year. Despite an increased level of provisioning in 2001, net profit rose by over 10 percent. With little change in average assets, BAJ’s return on average assets rose once again for 2001.
The bank’s most significant area of weakness is its asset quality, posting the kingdom’s highest NPL ratio. Although coverage by loan-loss reserves is less than the 100 percent, which is common among Saudi banks, the unprovided portion produces only a slight impairment on a strong capital position.
The bank prefers not to write off loans if it believes it can collect them, and this practice has resulted in a slow but continued reduction in the level and share of NPLs.
CI observed that, while it will be a few more years before BAJ’s financial statements can be comparable to those of the other Saudi banks, the improvements made every year are tangible. The results of 2001 depict the most recent of a string of improvements dating back to the bank’s 1993 changes in ownership and management.
BAJ was founded in 1976 when the Saudi branches of the National Bank of Pakistan (NBP) were capitalized into Saudi Arabia’s first foreign joint-venture bank, and repeated capital increases through 1994 diluted NBP’s interest to 5.83 percent.
The bank’s main areas of activity are corporate banking, share brokerage services, and treasury operations. With 13 branches, total assets of $1.4 billion, and a 1.1 percent market share, BAJ is Saudi Arabia’s smallest bank. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
