Agency downgrades Jordan's Arab Bank

Political tensions may be easing, but a ratings downgrade for Arab Bank, a Jordan-based lender, show that investors are still uneasy in the kingdom.

Powered by automated translation

Political tensions in Jordan may have eased, but a downgrade of Arab Bank by Moody's Investors Service will give little relief to shareholders in the Amman lender.
Moody's cut its rating on Arab Bank by one notch to "C minus" from "C" with a "negative" outlook. The bank's Dubai branch was also downgraded in line with the parent company.
The downgrade followed the same ratings agency's lowering of Jordan's sovereign rating to "Ba2" from "Baa3". The kingdom's demotion to "speculative grade" has raised concerns about the exposure of its banks to sovereign debt.
"The negative outlook [on Jordan's banks] . reflects the continued fragile regional political landscape and related downside economic and financial risks," Moody's said in its report. "The [Arab Bank] group could be faced with additional asset quality pressure because of the likely economic slowdown in the politically troubled countries to which it is exposed."
The bank's first-quarter net profit rose 13.7 per cent to US$181.8 million from the same period last year. Operating income rose 4.3 per cent to $157.7m, although revenue fell 3 per cent to $370.4m.
The trouble for Arab Bank is that states in the Middle East and North Africa that have recently experienced unrest, including Egypt, Tunisia, Libya, Bahrain, Syria and Yemen, account for more than one third of its assets, according to Moody's estimates.
"Increased loan loss provisions during 2010 have also exerted negative pressure on the group's profitability," the agency said.
The increasing nervousness among ratings agencies will be watched carefully at National Bank of Abu Dhabi, which plans to expand in the kingdom as it seeks greater access to the Levant.
Investors have been dumping Arab Bank's stock for some time,with the shares falling 9.82 per cent since the start of the year.
Amman's stock exchange has been one of the region's worst-performing this year.