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Capital Intelligence assigns ratings to Yemen Bank for Reconstruction and Development

Capital Intelligence (CI), the international credit rating agency, today announced that it has assigned ratings to Yemen Bank for Reconstruction and Development (YBRD), headquartered in Sana’a, Yemen.

A ‘BB-‘ Financial Strength Rating is assigned to YBRD, reflecting its solid capital, good liquidity and adequate profitability. It is constrained by a very challenging and difficult operating environment, concentration risk towards the sovereign, and a high level of non-performing loans (NPLs), although this is immaterial against total assets and capital. YBRD’s Long-Term and Short-Term Foreign Currency Ratings are set at ‘C+’ and ‘C’, respectively. The Outlook for all ratings is ‘Stable’. YBRD is one of the main banks in Yemen and is 51 percent owned by the Government of the Republic of Yemen. As such, the Bank should be supported by the authorities in case of need and a ‘3’ Support Rating is assigned. The remaining 49 percent, widely distributed, is owned by the private sector.

YBRD, majority-owned by the Yemeni government, has a good domestic franchise in the domestic banking sector. As with most peer banks, the asset side of the YBRD’s balance sheet is characterised by a very large percentage of Yemeni government Treasury bills (T-bills), which form just under two-thirds of total assets. The loan book, mainly short-term trade and working capital loans, is immaterial as a proportion of total assets, reflecting the difficult credit conditions in Yemen. The portfolio’s quality suffers from a large percentage of NPLs. However, in mitigation, YBRD’s NPLs form a very small percentage of total assets and the Bank has a sound level of provisioning in place.

The balance sheet is well capitalised. Liquidity is very good with a significant level of liquid assets in association with funding which is nearly all customer deposit sourced. The high level of liquid assets (mainly T-bills) carries concentration risk towards the sovereign, but this is understandable given the environment.

Profitability is sound despite the fall in 2013 as margins narrowed due to the decline in interest rates. Returns remain solid, aided by interest from T-bills, but also a more diversified non-interest income source compared to peer banks.

The main difficulty for YBRD is the challenging operating environment. The domestic operating environment remains weak due to economic pressure, security risks and political volatility. Real GDP growth is expected to reach modest rates of 1.9 percent in 2014, reflecting the decline in the growth rates of hydrocarbon GDP by more than 8 percent. 2015 is unlikely to witness much stronger growth, but this will depend on any stability returning to the country.

YBRD was established in Sana’a, Republic of Yemen, on 28 October 1962 as a public shareholding company. As at end 2013, total assets amounted to YER210,245mn (approximately USD979mn).