Investbank's ratings affirmed; foreign currency ratings on 'negative' outlook in line with Jordan's Sovereign outlook

These Ratings are set at the same level as CI's Sovereign Ratings for Jordan. In line with the 'Negative' Outlook CI recently assigned to Jordan's Sovereign Long-Term Foreign Currency Rating of 'BB', the Outlook for the Bank's Long-Term Foreign Currency Rating is revised to 'Negative' from 'Stable', in common with other Jordanian banks.

This reflects Investbank's base of operations in Jordan and its exposure to Jordanian sovereign debt. Accordingly, the Bank's ratings remain highly correlated with the sovereign's creditworthiness.

The downgrade of the sovereign or any improvement in Jordan's creditworthiness would have a corresponding effect on Investbank's ratings. The Support Level remains at '3', in view of the high likelihood of official support in case of need.

CI affirms Investbank's Financial Strength Rating (FSR) at 'BB+', on 'Stable' Outlook. Although Jordan's economy is growing at a measured pace, ongoing geopolitical risks in the region could hamper the country's projected economic expansion and magnify credit risk in the market.

The effect of any downturn may place renewed pressure on Investbank's asset quality and profitability (as is the case with other Jordanian banks as a group).

Mitigating factors in this regard are the Bank's recent capital increase, strong operating profitability, and high liquidity. For the FSR to be raised the Bank would need to show a significant improvement in asset quality, particularly the non-performing loan (NPL) ratio, coupled with improved borrower and deposit concentrations.

While Investbank ranks among the small-sized institutions in terms of assets in the Jordanian banking sector, its capital base is noticeably larger than that of other small banks in the country. A new chief executive officer appointed in 2011 has led to an exhaustive review of the credit portfolio. That process culminated in a rise in NPLs and stepped up provisioning. Although the NPL ratio has since declined, it remained higher than Jordanian sector average, reflecting the effect of a sharp slowdown in Jordan's economic growth. On a positive note, the Bank continued to improve loan-loss reserve coverage for NPLs. Nevetrheless, in view of ongoing elevated credit risk amid heightened geopolitical risk factors, there is the possibility that NPLs may see renewed growth going forward.

The successful rights issue in 2011 has enabled Investbank to meet recent regulatory paid-up capital requirements. At the same time it has strengthened shareholders' equity and improved the ratio of unprovided NPLs to free capital. Investbank's capital base now provides good scope for business expansion over the near- to medium-term and an effective buffer against potential setbacks. Although liquidity has tightened somewhat, it continues to be a positive ratings driver, in common with other Jordanian banks, highlighting the relatively low share of loans in total assets. Funding is sourced principally from customer deposits. Investbank's sources of income are reasonably diversified and generate good levels of gross income. Notwithstanding a decline in net profit in 2011 due to substantial provision charges related to the clean-up exercise, the Bank's operating profitability remained better than the sector average and provides the flexibility to create provisions as necessary. Net profit recovered somewhat in Q1-Q3 2012 over the same period a year earlier, boosted by an exceptional gain from the sale of fixed assets, despite a large provision set aside for a fraud case.

Investbank was established in 1982 as a financial and investment company and subsequently granted a license to operate as a commercial and investment bank in 1989. The Bank was set up by a group of prominent local businessmen, including Jordanian expatriates in Kuwait. The founding shareholders continue to have sizeable stakes in the Bank. Operations are focused on lending to commercial entities and individuals, treasury and financial brokerage.

The current name was adopted in 2008 following a rebranding exercise (though its official name remains 'Jordan Investment & Finance Bank'). The Bank reported total assets of JOD715m ($1,007m) and total capital of JOD132mn ($186m) at end-September 2012.