Moody's changes outlook on Cairo Amman Bank's D- BFSR to positive (Jordan)

Moody's notes that the positive outlook on the bank's BFSR reflects its very good performance during 2009, which has been a relatively difficult year with various economic challenges for the Jordanian banking system as a whole. CAB's stronger performance than other rated Jordanian banks was mainly driven by its business model, which is geared towards salary-linked accounts and credit facilities granted predominantly to government employees.

This client segment has to a great extent shielded CAB from the high provisioning costs that other banks are experiencing in the currently difficult operating environment.

CAB's nine-month results point to a year-on-year increase in net profits of about 4% with recurring net interest and commission income increasing by almost 5.5% and other income benefiting significantly from gains from financial assets. On the expense side, the bank was able to contain its total expenses, including any loan loss provisions, as they increased year-on-year by a moderate 8.1%. In addition, CAB continues to exhibit sound financial fundamentals with a capital adequacy ratio of 14% at the end of September 2009, of which 12.3% is in the form of Tier 1, without considering the current year's profits.

The bank's wide branch network in Jordan as well as in the Palestinian areas provides it with a very comfortable funding base, with customer deposits accounting for less than 50% of its net loans. Its gross non-performing loans (NPLs) have marginally increased in absolute terms but proportionally have been contained, unlike at other Jordanian banks.

CAB's gross NPLs accounted for 6.3% of gross loans as of September 2009 compared to 6.4% in December 2008, while the provisioning coverage ratio remained high at 116%.

An upgrade of the bank's BFSR will very much depend on the sustainability of this level of financial performance over the short-to-medium term, and also on the bank's ability to extract value from its existing client base and further enhance its franchise. Downside risks do exist, however, given CAB's exposure and presence in the Palestinian areas. Any unfavourable political developments in these high-risk areas could have a significant adverse impact on the bank, as around 20% of its loan book relates to customers that either operate or are domiciled in these areas.

The last rating action on Cairo Amman Bank was taken in April 2007 when its BFSR was upgraded to D- from E+.

The principal methodologies used in rating this issuer were 'Bank Financial Strength Ratings: Global Methodology,' and 'Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology.' These can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Amman, Cairo Amman Bank had total assets of JD1.7bn ($2.4bn) as of end-September 2009.