Capital Intelligence announces Jordan Ahli Bank's ratings affirmed

The FSR is constrained by a below peer-average capital adequacy ratio (CAR) and high non-performing loan (NPL) level, together with ongoing elevated credit risk in the market and a challenging regional environment.

The Support factor remains at '3' given the high likelihood of official support in case of need. All ratings carry a 'Stable' Outlook.

JAB is the fourth largest bank in terms of assets in the Jordanian banking sector. While JAB had achieved relative success in resolving legacy impaired credits in the past through strong effective measures, its NPL ratio remains above the average level in the local market.

Due to the effects of the slowdown across key sectors of Jordan's economy in recent years, NPL accretion increased in the first nine months of 2012, following a decline in the preceding year. The trend in 2012 suggests that NPLs may rise further in the current year given ongoing high credit risk in the banking system amid a difficult regional geopolitical environment.

That said, loan-loss reserve coverage for NPLs continued to improve to a satisfactory level. In this regard, the Bank's recently improved operating profitability has enhanced its capacity to create provisions as required.

JAB's sources of income are reasonably diversified and continue to support good levels of income generation. However, the combination of a comparatively large cost base and sustained provisioning still depress profitability to some degree. This is reflected in a lower than sector average return on average assets ratio.

The Bank's liquidity position - which remains strong as is the case with other Jordanian banks - reflects the relatively low share of loans in total assets coupled with a growing customer deposit base. Despite a modest capital increase in 2011, CAR slipped to below the regulatory requirement in Q3 2012 reflecting a generous dividend policy. The latter in combination with modest profitability continue to restrict JAB's rate of internal capital generation.

JAB (the name adopted in 2006 for the erstwhile Jordan National Bank) was established in Amman in 1955. The Bank provides a universal banking service in Jordan through its sizeable network of 51 branches and brokerage subsidiary. Abroad, JAB has a small banking subsidiary in Lebanon (Al-Ahli International Bank operating 9 branches in Beirut), and branches in Palestine (6) and Cyprus (1).

There is very little lending activity in Palestine in view of the ongoing difficult operating environment, while in Lebanon and Cyprus the focus is on treasury and, to a lesser extent, lending. JAB's major shareholders include the Mouasher family (25%), Abraaj Capital (11%), Byblos Bank (Lebanon, 10.3%) and Jordan Investor Centre (part of the Mouasher group of companies, 6%). The Bank reported consolidated assets of JD2.58bn ($3.6bn) and total capital of JD261m ($367m) as at end-September 2012.