Sharjah Islamic Bank assigned 'BBB/A-2' ratings; outlook stable

"The ratings on SIB factor in the bank's strong financial performance, solid capitalization, and improving asset quality," said Standard & Poor's credit analyst Anouar Hassoune.

The long-term rating also includes a one-notch uplift to reflect our belief that the government of the Emirate of Sharjah--SIB's largest single owner--would provide support if needed. The Sharjah government owns 27.4% of SIB's capital, and is well represented on the board of the bank. With a strong relationship with the government, SIB appears to be the flagship bank of the emirate.

Offsetting these positive factors are SIB's narrow customer franchise and limited operating and geographic diversification, which contribute to high concentration risks. In addition, the bank remains dependent on short-term deposits for funding.

"We expect that SIB will maintain its strong performance and continue to benefit from close ties to the Sharjah government," Mr. Hassoune said.

The ratings could be raised if geographic and operating diversification proves successful, concentration risks in the loan book reduce, and the bank's funding profile improves.

The ratings could come under downward pressure if profitability and asset quality deteriorate significantly, financial leverage becomes excessive, or links with the government weaken.