Manama – Islamic International Rating Agency (IIRA) has reaffirmed the international scale ratings of AlBaraka Bank Egypt (‘ABBE’ or ‘the bank’) at ‘B-/B’ (Single B Minus / Single B). On the national scale, ratings have been reaffirmed at ‘A-(eg)/A2(eg)’ (Single A Minus / A Two). Outlook on the assigned ratings is Stable.

ABBE is a mid-sized private sector bank operating in Egypt with a network of 31 branches (Dec’16) and is listed on the Egyptian Stock Exchange. Owned in majority by the Al Baraka Banking Group (‘ABG’ or ‘the Group’), the bank benefits from the Group’s strategic guidance, resulting business synergies and strong franchise. The bank has received sponsor support, in the form of tier-II eligible Mudaraba funding from two of its institutional shareholders, amounting to USD 20m in 2008 and USD 45m in 2017; the recent tier II equity infusion has considerably strengthened risk buffers, and we do not foresee a need for further capital infusion over the short to medium term horizon.

In the light of past instances of sponsor backed funding, the assigned ratings incorporate the potential for sponsor support. Furthermore, our rating assessment of ABBE is supported by the presence of sizable risk absorption buffers, substantial liquidity and limited exposure to credit risk.

The bank’s strategy of conservative asset deployment is manifest in sovereign debt securities remaining the dominant asset class, and sovereign assets comprising about half the balance sheet assets, either in form of financing or investment exposures. Portfolio impairment level remains low. Despite increased credit risk expectations for the Egyptian market, we expect ABBE’s impairment to increase only moderately in 2017.

We have noted an improvement in earnings as a result of growth in financings and investments and increased income from ancillary banking business, lower impairment related charges and controlled increase in administrative overheads, despite high inflation. However, the consistent increase in benchmark rates along with an increasing proportion of wholesale/institutional funding has impacted the banking spread and net profit margin. We expect a continuation of these trends and will particularly follow asset quality indicators, going forward.

The fiduciary score has been assessed in the range of ’66-70’, reflecting adequate fiduciary standards wherein rights of various stakeholders are adequately protected.

For further information on this rating announcement, please email to iira@iirating.com

Sabeen Saleem, CFA

Chief Executive Officer

© Press Release 2017