Capital Intelligence Affirms Ratings Of Bank Aljazira
Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the ratings of Bank AlJazira (BAJ), based in Jeddah, Saudi Arabia. The Financial Strength Rating of ‘BBB’ is supported by the Bank’s success in developing its new markets in terms of loans and deposits, its continually improving asset quality and its improved capital profile.
For the same reasons, the Long-Term Foreign Currency Rating is affirmed at ‘BBB+’ and the Short-Term Foreign Currency Rating at ‘A2’. Ratings are constrained by the Bank’s high cost structure and continuing low operating profitability.
All ratings carry a ‘Stable’ Outlook. In light of the Bank’s position in the Saudi banking sector, official financial support is expected to be forthcoming in the event it is needed. Consequently, the Support level remains at ‘2.’
Following the loss of a particularly profitable source of business (brokerage, asset management and the financing of share trading activity) with the 2006 correction in the Saudi stock market, BAJ began a search for a new niche in the Saudi banking market.
Fortunately, entry into new markets was facilitated by the fact that the Bank began the transition period in 2007 with good asset quality, very strong liquidity and a sound capital profile. After working with consultants and after two changes in management, the Bank chose to develop for itself a new market in consumer and SME business.
BAJ has apparently resolved its management issues and has begun to make progress in the past two years. Current financial statements (Q1 2012) indicate that the Bank may have found the path to success, as its efforts in its chosen market appear to be bearing fruit.
A high cost structure and erratic trends in non-special commission income (NSCI) have hindered its ability to generate a sound operating profit. However, because of rising special commission income, operating profit over the past three years has been more than sufficient to cover the sharp 2009 rise in non-performing loans (NPLs), and in 2011, the Bank achieved full coverage of its NPL portfolio.
Improvement in asset quality in 2011 allowed the Bank to accomplish this with a minimum of loan-loss provisioning expense and therefore a robust growth in its net profit and ROAA. The latter remains very low, but the strong improvements in both 2011 and Q1 2012 are promising signs.
Expansion into new markets has produced robust growth in customer deposits – especially demand deposits – and in the loan book. There is some sector concentration, but because of the growth in consumer lending, that issue has become less of a concern than in the past.
While liquidity has tightened, the Bank’s strong liquidity profile at the outset of the process has resulted in a liquidity profile on a par with the rest of the peer group. A recent issue of subordinated debt in the form of a sukuk has added to the Bank’s capital profile, and will continue to play a part in the Bank’s ongoing growth.
Originally a part of the overseas branch network of the National Bank of Pakistan (NBP), in 1976 BAJ became the first foreign bank to comply with the Saudi law requiring a 60% Saudi shareholding in all banks operating in the kingdom. Since 1992, increases in capital have come entirely from the Saudi shareholders, and NBP’s stake has been diluted to the current 5.8%.
During this time, control of the Bank passed to the Al Rashed Group (22%), and ownership was enhanced in 1997 when a stake was acquired by the Asir Company, which is majority-owned by Saleh Kamel, chairman of the Dallah Al-Baraka Group.
At year-end 2011, the Bank’s assets totalled SR39bn and its capital totalled SR5.8bn, making it the kingdom’s third-smallest bank by total assets and its second-smallest by total capital. It claims a market share of 2.6% by total assets. At the end of 2011, the Bank’s staff totalled 1,574 (2010:1,616).
Ameinfo
