Fitch affirms Bahrain's Ahli United Bank at long-term IDR 'A-'; Outlook stable

Its other ratings are Short-term IDR 'F2', Individual 'B/C' and Support '1'. The Outlook on the Long-term IDR is Stable.

The Long- and Short-term IDRs and Support rating reflect the extremely high probability of support for AUB from its core shareholders, in case of need. Its Individual rating reflects its expanding franchise, healthy profit growth, sound liquidity and asset quality and diversified funding. However, its Tier 1 ratio of 7.6% at end-June 2007, although acceptable by international standards, is relatively low by regional standards. The total capital ratio stood at 13.7%. The Fitch eligible capital ratio, which includes equity credit for the bank's hybrid capital, stood at a more comfortable 10% at end-June 2007.

Downside risk to the IDRs is limited due to expected support, while any upside would depend on Fitch's view of the strength of support from future shareholders. Upside potential for the Individual rating may be realised if the bank continues to expand its franchise and profitability, without jeopardising its risk profile, while downside risk could arise if asset quality deteriorates significantly, which is considered unlikely in current benign credit conditions, or if the Tier 1 ratio continues to decline.

AUB was formed in 2000 through the merger of two banks based in the UK and Bahrain. It subsequently acquired stakes in banks in Kuwait (Bank of Kuwait & the Middle East - 75%), Qatar (Ahli Bank - 40%), Egypt (Ahli United Bank (Egypt), formerly Delta International Bank - 49.8%) and Iraq (Commercial Bank of Iraq - 49.6%), and established a joint venture, based in Bahrain, together with two Iranian banks. AUB also recently announced an agreement to acquire a 35% stake in the Alliance Housing Bank in Oman. Its strategy is to pursue selective expansion in the Gulf/Middle East to create a leading retail, corporate and private banking franchise, with a presence in the UK and potentially Switzerland.

AUB is listed on the Bahrain and Kuwait stock exchanges. Its largest shareholders at end-2006 were: the Government of Kuwait through the Public Institution for Social Security (20%), Tamdeen Investment Company (13%) and the Government of Bahrain through pension funds (10%). It recently received a takeover bid from the International Bank of Qatar ('IBQ'), which has offered to acquire 55% of the bank's shares in cash at USD2.25 per share and the remaining 45% through a share swap, implying a total valuation of around USD8.6bn. The bid is subject to due diligence and regulatory approval. IBQ is a 20% associate of the National Bank of Kuwait, which also holds a management contract, while the remaining 80% is held by prominent local groups in Qatar. IBQ is, however, a relatively small bank with equity of around USD350m at end-2006. Full details of the transaction are not yet available and Fitch will comment on any rating implications in due course.