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Cairo Amman Bank’s ratings affirmed on ‘stable’ outlook

Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Cairo Amman Bank’s (CAB) Long and Short-Term Foreign Currency Ratings (FCRs) at ‘BB-‘ and ‘B’, respectively. CAB’s Long-Term Foreign Currency Ratings are constrained by the ratings assigned to the sovereign (‘BB-‘/’B’/’Stable’), reflecting CAB’s base of operations in Jordan and its exposure to Jordanian sovereign debt. Accordingly, the Bank’s FCRs 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 the Bank’s FCRs. The Support Level remains at ‘3’ in view of the high likelihood of support from the Central Bank of Jordan (CBJ). The Outlook for CAB’s FCRs remains ‘Stable’, in line with the Outlook for Jordan’s Sovereign FCRs.

CAB’s Financial Strength Rating (FSR) is affirmed at ‘BBB-‘ on ‘Stable’ Outlook, supported by the Bank’s sound loan asset quality, high liquidity, good capital adequacy and strong profitability at both the operating and net levels. CAB’s consistently better than sector average non-performing loan (NPL) ratio throughout the years – as a result of its conservative credit policy – has translated into moderate provision charges, preserving its strong profitability at the net level. The FSR is constrained by the relatively high concentration to Jordan’s sovereign debt, loan risk exposure in Palestine, and the ongoing challenging domestic and regional operating environment.

CAB continues to demonstrate sound credit metrics, reflecting good risk management and a cautious business strategy. In spite of an ongoing challenging operating environment attributed to ongoing high geopolitical risk factors, the Bank has maintained sound asset quality, as evidenced by its sound and lower than sector average NPL ratio and good loan-loss reserve (LLR) coverage. CAB has an established retail business franchise (loans and deposits), aided by its extensive branch network in the country. The Bank also operates a relatively large branch network in Palestine, but these outlets act principally as deposit takers, as the credit policy in Palestine remains very careful in view of the prevailing difficult environment. As such, CAB’s liquidity ratios remain strong, as is the case with peer banks, reflecting the relatively low share of loans in total assets, coupled with a strong customer deposit base. Relatively cheap retail customer funds continued to contribute a major share to total customer deposits.

The balance sheet remains comfortably capitalised, benefiting from a sound rate of internally generated capital. A comparatively low dividend payout ratio has served to reinforce the capital base over the years. CAB’s sources of income are well diversified, benefiting from multiple sources of net interest and non-interest income. The Bank’s strong net interest income generation is attributed to the sector best net interest margin. Operating profitability and return on average assets (ROAA) increased in 2013, with both remaining at a strong level into H1 2014. While the operating and economic environment in Jordan remains challenging, due to elevated regional political risk factors, CAB’s effective risk management, in combination with its better than average risk absorption capacity, places it in good stead to face potential setbacks in the market.

CAB was established in 1960 as a Jordanian chartered public shareholding company to take over the local and Palestinian operations of Egyptian government-owned Banque du Caire. The Bank currently has the second largest representation in Palestine among Jordanian banks (after Arab Bank plc). While the lion’s share of CAB’s business is retail banking, the emphasis on corporate and SME banking has grown over the years bringing diversification to risk assets and earnings. The largest shareholders are represented by family members of two prominent Jordanian business groups (namely Masri and Talhouni), who in aggregate hold roughly one-half of the Bank’s share capital. Egypt’s state-owned Banque Misr (parent of Banque du Caire) owns 10.8% of shares. The Bank’s total assets as at end-June 2014 amounted to JOD2.31 billion (USD3.25 billion) and total capital was JOD268mn (USD377mn).