Standard & Poor’s Ratings Services raised its long-term counterparty credit rating on Bahrain-based Ahli United Bank (AUB) to BBB+ from BBB. At the same time, S&P affirmed the short-term counterparty credit rating at A-2. The outlook is stable.
“The rating action follows the revision to ‘BBB+’ from ‘BBB’ of our transfer and convertibility (T&C) assessment on the Kingdom of Bahrain. This reflects our updated regional view of the likelihood of Gulf Cooperation Council (GCC) states restricting non-sovereign access to foreign exchange,” S&P in a statement said.
“Our rating on AUB was previously one notch below the ‘bbb+’ stand-alone credit profile (SACP) on the bank because the rating was capped at the level of our T&C assessment on Bahrain. Because our T&C assessment on Bahrain is now ‘BBB+’, the same level as the SACP on AUB, we have raised our long-term rating on the bank to ‘BBB+’.
“Following the rating action, our long-term rating on AUB is one notch above the long-term rating on Bahrain. This reflects AUB’s strong geographical diversification, with limited credit exposure to Bahrain. On June 30, 2013, Bahrain accounted for only about 15% of AUB’s gross credit exposures. At the same time, lower-risk regions–notably the other GCC countries and Europe–made up about 65% of gross exposures. Overall, the group generated almost 90% of its earnings from obligors outside Bahrain in the first six months of 2013.
“The stable outlook reflects our opinion that AUB’s business and financial profiles will remain relatively unchanged over the next two years. The bank’s good geographic diversification should support its resilience to the elevated political and economic risks in some countries where it operates, including Egypt. The outlook also factors in our expectation that AUB will maintain its asset quality and liquidity metrics at their current levels. We anticipate that our risk-adjusted capital (RAC) ratio before adjustments for AUB will remain close to 8.0% over the next 18-24 months, based on our expectation that AUB’s financial performance will gradually improve over this period.
“A positive rating action appears unlikely over the outlook horizon of two years. An upgrade of AUB would require an upward revision of our T&C assessment on Bahrain and an improvement of the bank’s SACP to ‘a-‘.
“Triggers for a negative rating action include, but are not limited to, AUB’s RAC ratio before adjustments falling to less than 7%, its funding and liquidity profile materially weakening, or a lowering of our T&C assessment on Bahrain. We could also lower the ratings if the situation in Egypt, where the bank had about 10% of its gross credit exposures on June 30, 2013, was to deteriorate dramatically.”