Tadhamon International Islamic Bank's Financial Strength Rating downgraded; 'Negative' outlook on all ratings

TIIB's Long- and Short-Term Foreign Currency Ratings are assigned at 'b-' and 'c' respectively, at the sovereign ceiling for Yemen.

The Bank recorded a loss in 2011, due to weakening asset quality and a subsequent large provision charge, which more than wiped out operating profit.

Operating profit itself is very weak, in part due to a loss on foreign currency transactions in 2011.

However, a number of the Bank's income lines have historically been very volatile, reflecting its investment assets which contain a large proportion of real estate assets and available-for-sale securities. The Support Rating is maintained at '4'.

Capital adequacy has weakened, with low internal capital generation, and is at an insufficient level in CI's view, particularly given the extremely difficult operating environment and TIIB's asset and risk profile. Supporting the Bank's ratings is full provisioning and a currently adequate funding profile through its unrestricted investment and savings accounts.

The Outlook for all Ratings remains 'Negative', owing to the continued extremely challenging operating and economic environment in Yemen, as well as elsewhere in the GCC. Any deterioration in the Bank's financials would put further downward pressure in particular on its Financial Strength Rating.

TIIB has experienced a very challenging period over the past few years. Asset quality and earnings have been hit on two fronts; domestically through the Yemeni crisis in 2011, and regionally on the back of the global financial crisis which has impacted GCC markets.

TIIB has significant asset exposure, including unquoted securities and real estate investments in the GCC, and these have been impacted by the downturn. TIIB's earnings streams are volatile and currently core income is weak.

TIIB - a Yemeni joint-stock company - was established under the name of Yemen Islamic Bank for Investment and Development in 1995. The name of the Bank was changed to Tadhamon Islamic Bank. The Bank converted to Islamic banking and changed its name to TIB in 1996 and at the EGM on 20 March 2002 it changed again to its present name.

The majority of shares are held by directors, associates, and member companies of the Hayel Saeed Anam (HSA) international group of companies, which is the largest corporation in Yemen. Total assets of the Bank stood at YR358bn ($1.7bn) at end 2011.