Fitch affirms Bahrain's Ahli United Bank at 'A-'; outlook stable

The Support Rating Floor is affirmed at 'A-'.

The Long- and Short-term IDRs and Support rating reflect the extremely high probability of support for AUB from its core shareholders, if needed. Its Individual rating reflects the bank's expanding franchise, solid operating profit despite rising impairment charges, sound liquidity and asset quality, and diversified funding. Its tier 1 capital ratio (10.1% at end-June 2009 in accordance with Basel II) is below regional standards, but has improved in H109. AUB aims to maintain an optimal mix between tier 1 and tier 2 capital. The Fitch-eligible capital ratio, which includes equity credit for the bank's hybrid capital, stood at a comfortable 12% at end-June 2009.

Downside risk to the IDRs is limited due to expected shareholder support, if needed. Upside potential for the Individual rating is currently limited, considering the difficult operating environment, but could arise from significant expansion of the bank's franchise and profitability, without undermining its risk profile. Downside risk could arise if asset quality and profitability were to deteriorate significantly or if the tier 1 ratio were to be seriously eroded.

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, Qatar, Iraq, Egypt and Oman. It is also present in other Gulf and Middle Eastern countries through its brokerage subsidiary based in Kuwait.

Its long-term strategy is to pursue selective expansion in the Gulf/Middle East, through organic growth and acquisition, to create a leading regional diversified financial services group. However, in the current operating environment, the main focus has been on maintaining strong liquidity, asset quality and cost control. AUB is listed on the Bahrain and Kuwait stock exchanges. Its largest shareholders at end-June 2009 were the Government of Kuwait through the Public Institution for Social Security (19.3%), the Government of Bahrain through the Social Insurance Organisation (10.4%) and Tamdeen Investment Company (9.7%).

In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.