Fitch affirms ratings of Arab Bank Australia

ABAL's ratings are underpinned by an extremely high probability of support from its closely related parent, Arab Bank ('A-' (A minus)/ 'F1'/ Stable Outlook), a Jordanian bank with a history of consistent profitability, prudent balance sheet management and geographic diversification with operations in 30 countries. As a larger bank, Arab Bank has good capacity to provide support and, in Fitch's opinion, there is an extremely high probability that support would be forthcoming, if it were ever required.

Consistent with the low risk culture fostered by Arab Bank, ABAL adopts a conservative approach to risk management, but this has hampered its ability to grow in the face of intense competition for lending in its core markets in Australia. Hence, a 9% decline in net interest income and a decrease in net profit to Dhs1.4m in FY07 were largely due to decreased lending activity. At the same time, intense competition for deposits eroded the bank's net interest margin, but 2.68% remains well above the Australian major bank average. Importantly, the bank's reluctance to lower credit acceptance standards has ensured exceptionally strong asset quality with the ratio of gross impaired loans to gross loans a low 0.04% and a loan impairment charge of only Dhs133,000 at FYE07.

ABAL sources more than 75% of total funding from retail deposits. The bank is also well capitalised reporting a Tier 1 ratio of 14.4% as at 31 December 2007 (FYE06: 14.2%).