Arab International Bank's ratings affirmed, remain on 'negative' outlook

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Arab International Bank (AIB)'s Long and Short-term Foreign Currency (FC) ratings at 'BB+' and 'B', respectively, and its Financial Strength Rating (FSR) at 'BBB-'.

The Support Rating is maintained at '3', which reflects a high likelihood of adequate shareholder support in case of need. All ratings continue to carry a 'Negative' Outlook. Both the FSR and FC ratings would come under significant pressure if the operating environment and sovereign risk situation in Egypt continue to deteriorate.

Notwithstanding heightened risks and the uncertain economic and political environment, the ratings continue to be driven by the Bank's good liquidity, capitalisation and asset quality. The major rating constraints are the deterioration in operating conditions, the Bank's ongoing low profitability and concentration risks.

In the past, Arab International Bank (AIB) tended to benefit from economic crises due to its special charter and its minimal exposure to the Egyptian economy. While the Bank fully maintains its offshore status, it is now more dependent on the Egyptian economy for its earnings as a result of its increased exposure to Egyptian credit risk. Although asset quality has been improving, a prolonged economic contraction is likely to lead to higher NPLs and provision charges. Liquidity risks are augmented, since as a wholesale bank AIB is exposed to concentration on both sides of the balance sheet. However, the Bank's liquidity remains strong, despite a lower level of customer deposits, as loans have also been cut back.

AIB remains well capitalised following a substantial capital injection from core shareholders in 2009, which has raised capital adequacy to a good level. AIB has also been making good progress increasing net interest income. However, profitability remains low as AIB is precluded from operating in local currency. This major factor constrains net interest margins.