Fitch Ratings has downgraded Bahrain-based Arab Banking Corporation’s (ABC) long-term issuer default rating (IDR) to ‘BB’ from ‘BBB-‘. The outlook is stable. The agency has also downgraded the bank’s senior unsecured debt to ‘BB’ from ‘BBB-‘, subordinated debt to ‘BB-‘ from ‘BB+’, short-term foreign currency IDR to ‘B’ from ‘F3’ and Support Rating to ‘3’ from ‘2’. All ratings have been removed from Rating Watch Negative (RWN). The Individual Rating of ‘D’ has been affirmed.
The rating action follows the downgrade of Libya’s Long-term IDR to ‘BB’, RWN from ‘BBB’, RWN as the Central Bank of Libya is ABC’s majority shareholder.
However, Fitch added, the extent of the downgrade is limited by Fitch’s view that there is a moderate probability of support from the Kuwaiti Investment Authority (29.7% stake, Kuwait is rated ‘AA’/Stable). While Fitch believes that the Central Bank of Libya continues to be committed to ABC, there would be practical difficulties in providing timely support, considering the conditions in Libya and international sanctions. Both shareholders have participated in past rights issues and place sizeable deposits with ABC.
The affirmation of the individual rating reflects ABC’s improving performance and strengthening capitalisation in 2010, following an $1.1billion rights issue in March 2010. It also reflects the continued political and economic uncertainty in Libya and the wider Middle East and North Africa region and the impact this may have on ABC’s funding and liquidity, although Fitch currently views this to be adequate.
Established in 1980, ABC is a wholesale bank operating internationally, active in trade, project and structured finance, Islamic finance and treasury. While ABC is headquartered in Bahrain, local operations are limited given ABC has a wholesale banking licence. ABC holds substantial Libyan deposits, but credit exposure to Libyan entities is limited. The Central Bank of Libya increased its stake to 59.4% from 41.7% in December 2010 after acquiring a stake previously held by the Abu Dhabi Investment Authority.