The London-based Fitch Ratings agency has assigned a long-term rating of 'A-' (A minus) to British Arab Commercial Bank (BACB). At the same time, the bank's short-term, individual and support ratings have been affirmed at 'F2', 'B/C' and 3, respectively. The rating outlook is stable.
BACB's ratings reflect its niche market positioning, sound asset quality and healthy profitability, but also its focus on the Middle East and North Africa and thus its sensitivity to political and economic developments in a few key markets. In addition, the ratings take into account the support from shareholders Fitch believes the bank could call on if needed.
A London-based bank, BACB provides trade finance, commercial lending and treasury services to wholesale customers in North Africa and the Middle East and to OECD counterparties with interests in that region. Intimate knowledge of these markets and a conservative attitude to risk has helped the bank to remain largely free of asset quality problems.
The short-term and inter-bank nature of much of its exposure also mitigates credit risk. Some controlled expansion of the loan book is planned in order to improve margins. Core earnings have proved to be reasonably robust, but the bank does have some vulnerability to weakness in the oil price because many of its key markets are economically dependent on oil revenues.
Its margins also come under pressure during times of falling interest rates because of reduced income from the placement of shareholders funds. However, a relatively low cost base adds some flexibility to BACB's profit structure. Planned diversification into new markets and a broadening of the range of trade finance and treasury products should improve quality of earnings going forward.
The bank is 46.5 percent owned by HSBC Bank Middle East, a wholly owned subsidiary of the HSBC group. The remaining shares are owned by a small number of Arab institutional investors. Of these, the Libyan Arab Foreign Bank has the largest stake, with a 25 percent holding. The main shareholders have demonstrated their commitment to BACB in the past and Fitch considers that further support would be forthcoming if it were necessary.
The bank derives most of its funding from interbank deposits, mainly sourced from Arab World counterparties. The short-dated nature of the asset base and a portfolio of quality bank CDs and FRNs underpin strong balance sheet liquidity. With a Tier 1 ratio of 17.4 percent at end-April 2002, the bank is well capitalized. However, it is likely the bank will face higher regulatory capital requirements under the new Basel Accord, due to be implemented in 2005, and management sees adapting to this regime as a major challenge in the years ahead. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
