Moody's Investors Service has upgraded the foreign currency deposit ratings of Arab Banking Corporation (ABC) to Baa3/Prime-3 with a stable outlook from Ba1/Not-Prime positive outlook. The financial strength rating (FSR) of D+ is affirmed unchanged with a stable outlook.
According to Moody's, ABC has been improving its risk management systems over the past few years and has resolved most of the asset quality problems incurred in the past as a result of the bank's exposure to financially troubled countries. However, despite ABC's improved asset quality, Moody's retains ongoing concerns about the bank's exposure to Latin America.
Upon closer examination of ABC's funding, Moody's concluded that deposits from shareholders and their related institutions represent a significant part of the parent bank's funding. The stability of such funds and the track record of support from core shareholders during difficult operating conditions are important mitigating factors for the short-term nature of ABC's funding. Moody's analysis has led to a higher degree of support being imputed in ABC's deposit ratings, one of the key determinants for this rating action.
ABC's strategic focus on the Arab World is well aligned with the bank's core competence and is a positive contributor to this rating action, says Moody's. However, the challenge of such a strategy lies in the ability of the bank to generate profits from its regional expansion at times when ABC's overall profitability ratios remain relatively low.
In addition, a large part of the bank's capital is tied up in non-core financial institutions, and this not only represents a constraining factor to a regional expansion strategy, but also weakens the bank's capitalization as reflected in its high double-leverage ratio.
Arab Banking Corporation is headquartered in Bahrain and had consolidated total assets of $26.6 billion at year-end 2001. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
