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Fitch Affirms and Withdraws ABAL's ratings

Published 09/06/2016, 11:01 am
Updated 09/06/2016, 11:10 am
© Reuters. Fitch Affirms and Withdraws ABAL's ratings

(The following statement was released by the rating agency)SYDNEY, June 08 (Fitch) Fitch Ratings has affirmed Arab Bank Australia Limited's (ABAL) Long-Term Issuer-Default Rating (IDR) at 'BBB-', Short-Term IDR at 'F3' and Viability Rating at 'bb+'. The Outlook is Negative. Fitch has simultaneously withdrawn ABAL's ratings for commercial reasons. A full list of rating actions is at the end of this commentary.KEY RATING DRIVERS IDRS AND SUPPORT RATINGABAL's IDRs and Support Rating reflect Fitch's view that it is a core subsidiary of its parent, Arab Bank Plc (Arab Bank, BBB-/Negative). The agency believes there is a high likelihood of support from Arab Bank if needed, due to the potential reputational risk for the wider group if Arab Bank did not support one of its subsidiaries. ABAL and Arab Bank have a close relationship, sharing the same brand name and strategy. The group keeps a liquid balance sheet and is well placed to provide support, especially given ABAL's small size relative to its parent. ABAL made up just 2.1% of the group's total assets at end-2015.ABAL's Negative Outlook reflects the Negative Outlook on the parent's Long-Term IDR. Details can be found in Arab Bank's rating action commentary Fitch Affirms 3 Jordanian Banks; Revises Jordan Islamic Bank and Bank of Jordan's Outlook /a , dated 15 March 2016.VR ABAL's VR reflects its moderate company profile, improving asset quality and a funding and liquidity profile adequate for its rating level. Its VR also considers the bank's consistently weak operating profitability, which combined with high risk-weighted asset growth, is likely to pressure capitalisation.The bank's moderate company profile reflects a small Australian banking market franchise, high product and customer concentrations and susceptibility to economic changes and competitive pressure. Fitch does not expect ABAL to improve its franchise due to the oligopolistic position of a small number of large domestic banks, creating significant barriers to entry. A high level of single name and industry concentration risks in ABAL's credit exposures could make it more susceptible to larger credit losses relative to domestic peers. Fitch expects asset quality to stabilise due to ABAL's new underwriting system, low interest rates and unemployment. Higher asset prices also partly mitigate the increasing pressure on asset quality, resulting from a turning credit cycle and softer global credit outlook. The bank's asset quality has improved, but remains weaker relative to peers. Fitch says ABAL's operating profitability is unlikely to improve due to intense asset competition in a low-interest rate environment pressuring revenue generation. Cost management also remains weak. ABAL's poor profitability and volatile asset growth is likely to pressure its capital ratios, with the bank's Fitch Core Capital ratio already declining to 14.9% at end-2015, from 16.6% in 2013. However, Fitch expects ABAL's parent to provide capital, if needed.ABAL's funding and liquidity profile is likely to remain sound for its rating level. Fitch expects the bank's loan book to be fully funded by customer deposits. Single name concentrations within the bank's deposits result from its niche business model and small size. However, Fitch says a liquid balance sheet mitigates some of the risk. RATING SENSITIVITIESIDRS, VR AND SUPPORT RATINGRating sensitivities are no longer relevant given the rating withdrawal.The rating actions are as follows: Arab Bank Australia Limited:Long-Term IDR affirmed at 'BBB-'; Outlook Negative, WithdrawnShort-Term IDR affirmed at 'F3', WithdrawnViability Rating affirmed at 'bb+', WithdrawnSupport Rating affirmed at '2', WithdrawnContact: Primary AnalystAndrea Jaehne Director+61 2 8256 0343Fitch Australia Pty LtdLevel 15, 77 King Street, Sydney NSW 2000Secondary AnalystTim RocheSenior Director+61 2 8256 0310Committee Chairperson Jonathan LeeSenior Director+886 2 8175 7601Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Global Bank Rating Criteria (pub. 20 Mar 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1005789Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005789Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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