Moody's downgrades Arab Banking Corporation to Baa3/P-3 (Bahrain)

Stocks and Financial Services Press Releases Friday February 25, 2011 09:42
Limassol--25 Feb--Asian Banker

Limassol, February 24th 2011 -- Moody's Investors Service has today downgraded the foreign currency deposit ratings of Arab Banking Corporation B.S.C. (ABC) to Baa3/Prime-3 from A3/Prime-2. At the same time Moody's has lowered the bank's baseline credit assessment (BCA) to Ba1, from Baa3, which situates the bank at the lower end of the D+ bank financial strength rating (BFSR). The Baa3/Prime-3 deposit ratings and D+ BFSR remain on review for possible downgrade.


Moody's said that the downgrade of the supported deposit rating was driven by the ongoing severe political crisis in Libya, which is majority owner of ABC, through the Central Bank of Libya's (CBL) 59% stake. According to Moody's the highly volatile political situation raises material uncertainty regarding the availability of parental support from the Libyan authorities, notwithstanding their previous track record of providing support. As a result ABC's Baa3 deposit rating now incorporates only one notch of support uplift coming from the bank's minority shareholder the Kuwait Investment Authority (KIA).

Moody's added that the decision to lower ABC's BCA to Ba1 from Baa3 reflects the pressures that the bank is likely to face, given its association with its majority shareholder. ABC maintains some credit exposure to Libya, primarily off-balance sheet, and also exhibits considerable funding reliance on Libyan institutions. Although there is currently no indication that these sources of funds are at risk of withdrawal and although the bank maintains significant reserves of liquid assets to cope with other potential liquidity demands, the anticipated challenges are better reflected in a Ba1 BCA. Conversely Moody's notes the bank's relatively high Tier I capitalization ratio of 19.2% and recent return to profitability.

In keeping standalone and supported ratings on review for possible downgrade, Moody's acknowledges the uncertainty surrounding potential developments in Libya. During the review period Moody's will monitor such developments and also assess to what extent ABC might be affected by them or otherwise prove to be resilient. Solid indications that ABC's is able to conduct business as usual or that it has successfully coped with additional stress could lead to the confirmation of current ratings. By contrast, signs material deterioration in the bank's liquidity position could lead to a further downward rating action. Moody's review will also consider the extent of support from the bank's minority shareholder KIA. (February 25, 2011)--

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