Standard & Poor’s issued a new report examining the negative rating actions it has taken on several banks and insurance companies following sovereign rating actions in the Middle East and Africa since the unrest began.
The agency has taken action against four banks in Tunisia, two banks in Egypt, two banks and one insurance company in Jordan, and four banks and three insurance companies in Bahrain.
“Middle East Unrest’s Credit Impact: Negative Rating Actions On Several Banks And Insurers In The Region,” is part of a Standard & Poor’s Ratings Services’ special report looking at the potential credit implications of the current unrest in the Middle East and North Africa on various global industries and sovereign entities.
“While we do not rate any banks or insurance companies in Libya, the count includes Bahrain-based Arab Banking Corp. B.S.C. (BBB/Watch Neg/A-2), which is 59.4% owned by the Central Bank of Libya and that we classify as a government-related entity (GRE),” S&P said.
“We downgraded five banks that we classify as GREs, and placed them, as well as most of the other banks and insurers, on CreditWatch with negative implications. We revised the outlook to negative from stable on one bank and one insurance company, both based in Jordan. Our ratings on insurance companies in Tunisia remain unaffected for now, but in our view their balance sheets are almost certainly taking a short-term hit,” S&P in a report said.
“Resolution of our CreditWatch placements on the banks will depend largely on whether our opinion about the creditworthiness of the sovereign changes, and that hinges on political developments in these countries. Standard & Poor’s aims to resolve the CreditWatch placements within the next three months, and we expect that by then the course of political events will become clearer, as well as their economic impact,” it added.
The S&P in a report maintained that future rating actions would also depend on our updated assessment of the banks’ future SACPs, notably on the magnitude of any potential deterioration in asset quality and profitability in 2011-2012; the banks’ capital positions and other sources of additional financial flexibility, notably parental or government support; strategies for overcoming potential funding challenges and the subsequent implications for their liquidity position and the functioning of the domestic payment and interbank systems.
“The picture is different in each country and for each bank. Our ratings on the banks in Bahrain are investment-grade, and are speculative-grade in Tunisia, Egypt, and Jordan. The higher ratings on Bahrain’s banks generally reflect our view of the lower economic and industry risk of operating in a wealthier country. We place Bahrain in Banking Industry Country Risk Assessment Group 5, and Tunisia, Egypt, and Jordan in Group 8,” it said.
“Banking Industry Country Risk Assessment (BICRA) classifies countries into 10 groups ranging from the lowest-risk banking industries (Group 1) to the highest risk (Group 10) from a bank credit perspective.”