Sharjah Islamic Bank's foreign currency and financial strength ratings affirmed with stable outlooks

The Bank's '2' support rating reflects its ownership by the government of Sharjah.

The financial strength rating is maintained at 'BBB+'; the rating is supported by the Bank's very solid capital adequacy ratio and good liquidity.

Although a 'stable' outlook is assigned to the Financial Strength rating, the high credit risks in the economy together with SIB's rising financing impairments and declining provision coverage ratio exert downward pressures on the rating.

The Bank's subdued earnings growth in 2010 reflects its cautious outlook and its focus on preserving capital and strengthening liquidity. Although this led to a slight worsening of key profitability ratios, the Bank's return on average assets (ROAA) remained reasonably good. The downturn in the local economy impacted asset quality overall.

Impaired assets rose last year due to higher delinquencies in SIB's retail financing portfolio, and the coverage ratio fell.

However, bad debts were still at a manageable level at year-end. Renegotiated assets remained high at end 2010 reflecting the ongoing problems in the real estate sector.

Although credit risks in the economy remain high, the Bank's large capital base and solid capital adequacy ratio are mitigating factors. Moreover, the asset portfolio is very well collateralised. SIB's liquidity ratios were comfortable last year. As an Islamic bank with sizeable real estate exposures the Bank has large asset/liability maturity mis-matches on its balance sheet.

Customer concentrations are high in the customer deposit base. However, government deposits with the Bank tend to be stable and capital provides additional safeguards. The availability of central bank liquidity support is a mitigating factor as well.

SIB is a full-fledged Islamic bank. It is regarded as the national bank of its emirate of incorporation and has a close relationship with the local government. Its core businesses are corporate, retail and investments. Subsidiary businesses, which include brokerage and hotel management companies, also make small contributions.

SIB was one of the first to introduce many Shari'a-compliant retail products in the UAE. The Bank currently operates 23 branches and has a presence in all the emirates. The government of Sharjah and Kuwait Finance House are major shareholders with 31% and 20% stakes respectively.