Housing Bank for Trade and Finance's ratings affirmed

The Financial Strength Rating (FSR) is affirmed at 'BBB+' on the basis of the Bank's ongoing strong liquidity and customer deposit funding, very solid capital base, coupled with good and better than sector average profitability.

The FSR is constrained by a relatively high non-performing loan (NPL) ratio and the challenging economic conditions in Jordan and the region. In view of the high probability of support from the Central Bank of Jordan, the Support Level of '3' is maintained. The Outlook for all the Ratings is 'Stable'.

HBTF is a systemically important institution in Jordan, commanding significant market shares in assets, customer deposits and capital. The Bank has supportive shareholders, as well as strong ownership through Qatar National Bank, which owns 34.4% of shares. The shareholders have repeatedly fully subscribed to a number of rights issues over the years.

Due to the sharp economic slowdown in Jordan over the last few years combined with the worsening regional political environment, HBTF's loan asset quality has weakened as evidenced by the marked increase in NPLs in recent periods.

However, in mitigation, it should be noted that the Bank's share of loans in total assets remains comparatively low.

In response to sluggish economic conditions, the Bank has tightened its credit policy and introduced effective remedial measures to address loan arrears.

While this had the effect of producing a moderate decline in NPLs in 2011, NPLs resumed growth in the first half of 2012, highlighting ongoing stress in the corporate loan book and suggesting that a further rise is possible.

Mitigating factors in this regard are HBTF's solid capital base and strong risk absorption capacity. In tandem with the rise in NPLs in H1 2012, provisioning was stepped up, with loan-loss reserves providing adequate coverage. Unprovided NPLs constituted only a very small proportion of free capital.

HBTF's well-entrenched retail banking franchise is supported by the largest branch network in Jordan, facilitating the gathering of cheap retail customer deposits. This strength, combined with a proportionately small loan portfolio, has consistently produced some of the best liquidity ratios in the local market and testifies to a very liquid balance sheet, funded principally by customer deposits. The Bank's liquidity and capital adequacy remain key rating drivers.

Although net profit slipped in H1 2012 on larger provisions, the return on average assets improved slightly (due to a minor contraction in total assets) while operating profit strengthened further in both absolute terms and to average total assets. HBTF's better than peer group profitability is underpinned by good income generation and a competitive cost base.

HBTF was established in 1974 as a Specialised Credit Institution (SCI) with a social mandate to relieve the acute housing shortage in Jordan by offering long-term credit facilities to meet the country's residential and business needs.

Since the Bank's specialized role as a lender to the construction and housing sectors effectively ceased nearly two decades ago, HBTF has successfully diversified its credit activity into other key sectors of Jordan's economy including trade, retail and manufacturing.

With a universal banking business model in place and over 100 branches in Jordan, the Bank maintains operations in London, Bahrain, Algeria, Palestine and Syria.

HBTF's other prominent shareholders include Kuwait Real Estate Investment Consortium (18.6%, Kuwait government), Libyan Arab Foreign Bank (15.9%) and Jordan's Social Security Corporation (15.4%). Total assets were JOD6.8bn ($9.6bn) at end-June 2012 while total capital amounted to JOD1bn ($1.4bn).