CI Ratings affirms Ahli United Bank at 'A', with a stable outlook

22/10/2017 16:22 AST

Capital Intelligence Ratings (CI Ratings), the international credit rating agency, today announced that it has affirmed Ahli United Bank's (AUB) Financial Strength Rating (FSR) of 'A'.

According to a statement, the rating is supported by the bank's good loan asset quality, geographically diversified balance sheet and revenue streams, comfortable liquidity underpinned by customer deposit funding, and sound capital adequacy. Also supporting the FSR is the Bank's strong and improved profitability at all levels. Factors constraining the FSR are customer deposit concentrations, rather high real estate loan exposure, and the increased level of credit risk in the broader region exacerbated by the fall in oil prices. CI Ratings also affirmed the Bank's Long- and Short-Term Foreign Currency Ratings (FCRs) at 'A-' and 'A2', respectively.

These ratings are set above Bahrain's Sovereign ratings ('BB+'/'B'/'Negative' ) given that the majority of AUB's total assets, funding sources and earnings are derived from outside Bahrain, notably through the large Kuwait subsidiary Ahli United Bank Kuwait (AUBK: 'A+'/'A2'/'Stable') and, to a lesser extent, other GCC countries and the UK operation Ahli United Bank UK. The 'Stable' Outlook for all ratings is maintained. The Support Rating remains at '3', denoting the high likelihood of support from core shareholders and official sources. In the case of the largest subsidiary AUBK, there remains in force an explicit government guarantee of customer deposits placed in Kuwait and held with Kuwaiti banks.

AUB is conservatively managed and follows prudent risk management practises. A well executed business strategy has earned the Bank successful and significant business franchises in three (Kuwait, Oman and Bahrain) of the six oil-rich GCC markets. The expansion of AUB into the UAE last year through Ahli United Bank Limited (a first Category 1 licensee GCC bank in the Dubai International Financial Centre), will enable the Bank to diversify in corporate and private banking in the UAE and broader region. The subsidiary operations in Kuwait and UK considerably diversify risk assets, funding and revenue streams away from Bahrain, where in any case exposure is limited. That said, the Bank's balance sheet remains predominantly GCC based, reflecting the Bank's chosen business model and strategy.

AUB continues to face a challenging economic environment within the GCC region where credit risk - particularly in the corporate sector - remains comparatively high. The sharp fall in oil prices has elevated credit risk in regional economies and at the same time, tightened liquidity conditions for most businesses. The weaker operating environment manifested itself in a higher NPL accretion rate for AUB in 2016, although the increase came from a low base. Nonetheless, AUB's loan asset quality remains very sound with the strong loan-loss reserve cover and effective risk management being important mitigating factors.

Being primarily a corporate bank in the GCC, AUB is characterised by a rather high degree of borrower concentration - a phenomenon seen with other GCC banks. That said, almost all the Bank's top twenty borrowers were Kuwaiti names. The credit portfolio remains adequately diversified by economic sector with the comparatively high exposure to real estate lending largely spread across Kuwait and to a lesser extent Bahrain and UK (London) markets. AUB's credit policy towards the real estate sector is considered prudent and non-speculative in nature, with prudent loan-to-value ratios and backed by income generating assets.

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CPI Financial