Capital Intelligence (CI) raises Al Masraf’s Financial Strength Rating to ‘BBB’ and Foreign Currency Long-Term Rating to ‘BBB+’.
Capital Intelligence (CI), the international credit rating agency, has raised the Financial Strength Rating of the UAE’s Al Masraf (also known as the Arab Bank for Investment and Foreign Trade) to ‘BBB’ from ‘BBB-’ in view of the substantial improvement in asset quality and particularly the full coverage on non-performing loans (NPLs), while other key financial ratios continue to be maintained at sound levels.
The Bank’s solid capital adequacy ratio (CAR), good liquidity and high profitability ratios are major supporting factors. High customer concentrations, the small balance sheet and continuing high credit risks in the country are constraining factors. The NPL ratio remains higher than the peer group average, but NPLs are now fully covered by loan-loss reserves, with capital providing substantial additional cover.
The Foreign Currency (FC) Long-Term Rating is upgraded to ‘BBB+’ from ‘BBB’ to reflect the improvement in asset quality. The Short-Term FC Rating is maintained at ‘A2’. These ratings are underpinned by the Bank’s good financials overall and its ownership by the UAE government. Capital Intelligence is of the view that the UAE government, which is an important shareholder of the Bank, is very likely to provide support in case of need. The Support Rating of ‘2’ is therefore maintained. The Outlook for both the FSR and the FC Rating is revised to ‘Stable’ from ‘Positive’.
The Bank’s asset quality ratios strengthened substantially in 2014, with a significant decline in NPLs and a substantial strengthening of the loan-loss reserve coverage ratio. Full coverage was maintained at end H1 2015 and there was a small decline in NPLs as well. Write-offs and recoveries underpinned the fall in impaired loans, but new NPLs have also fallen. Customer concentration levels are declining with the acquisition of new borrowers and the trend is likely to continue this year.
Restructured loans are fairly high, but the portfolio is performing well. The Bank’s large capital provides additional cover for NPLs. The CAR continues to be maintained at a high level. Capital consists almost entirely of core capital funds.
Liquidity ratios remain strong despite some tightening on account of strong credit growth. The Bank is trying to change its customer deposit mix. Government/public sector deposits declined as a proportion of the total in 2014 on the back of strong growth in deposits from the private corporate sector following the establishment of a team dedicated to acquiring new deposit customers. However, the retail deposit base continues to be low and customer concentration levels remain high. The Bank’s overseas shareholders are major inter-bank depositors. Inter-bank liabilities fell last year and in H1 2015; these funds are placed in inter-bank deposits with matching maturities and are not used for funding the loan portfolio.
Key profitability ratios continue to be sound. The substantial growth in lending and a wider net interest margin contributed to a strong increase in net interest income in 2014; this offset a fall in non-interest income (attributed to lower gains on investments compared to 2013) and higher operating costs, which reflect increased spending on the businesses. Both ROAA (return on average assets) and operating profitability ratios remained high, with ROAA exceeding the peer group average as in previous years. The Bank performed well in H1 2015 on the back of good growth in gross income.
About Al Masraf
Al Masraf was set up in 1976 as the Arab Bank for Investment and Foreign Trade. Its principal shareholders are the UAE government (42.28%), the Libyan Arab Foreign Bank (42.28%) and Banque Exterieure D’Algerie (15.44%). In 2007, the Bank adopted Al Masraf as its brand name. Al Masraf is a small bank, with total assets of AED 14 billion at end H1 2015. The Bank is primarily a corporate bank; medium-sized and large companies are its main customers. Trade finance is a major activity.
Capital Intelligence (CI) ratings can be found at www.ciratings.com.