DUBAI, February 22, 2011 - Standard & Poor's Ratings Services today placed its 'BBB-' long-term and 'A-3' short-term counterparty credit ratings on Al Baraka Banking Group B.S.C. (ABG) on CreditWatch with negative implications.

The CreditWatch placement follows rating actions taken on Tunisia, Egypt, Jordan, and Bahrain, in which the group operates. The most recent is that on the Kingdom of Bahrain (see "Kingdom of Bahrain Ratings Lowered By One Notch To 'A-/A-2' On Heightened Political Risk; On CreditWatch Negative," published Feb. 21, 2011 on RatingsDirect), where the bank is incorporated.

With total assets of $15.0 billion on Sept. 30, 2010, ABG and its various subsidiaries comprise a large Islamic banking group, primarily engaged in retail and corporate banking, and operating in numerous MENA countries. 

Although we consider the group's geographical diversification to be above the average for the region, it is vulnerable to a combined shock in these markets. ABG operates in each country through locally incorporated and majority owned subsidiaries, which we consider to be located in high risk countries, with a Banking Industry Country Risk Assessment (BICRA) above group '5' (the scale ranges from group '1', which denotes the lowest risk, to group '10', which denotes the highest risk). The group's main subsidiaries are in Turkey (32% of the group's assets as of Sept. 30, 2010, in group '6'), Jordan (23%, group '8'), Egypt (15%, group '8'), Algeria (12%, no BICRA), and Bahrain (6%, group '5'). With the exception of Turkey, we note that all other above-mentioned countries have been adversely affected by political instability since December 2010.

We believe that the current turmoil could materially weaken the group's operating environment and, in turn, lead to asset quality and profitability deterioration. The extent of such a deterioration largely hinges on future sovereign and economic risk developments in the countries where the group operates. Currently mitigating our view of the present risks are the group's strong brand recognition in Islamic banking; good funding base, the bulk of which comes from customer deposits; sound resilience of its largest market (Turkey) where its largest single-name exposures are located; and granular financing portfolio.

ABG is licensed in Bahrain and regulated by the Central Bank of Bahrain. However, it has very limited business operations in this country. The ratings on ABG are not an indication of the financial strength of its various subsidiaries. They reflect the group's stand-alone credit profile (SACP) and do not factor in exceptional support from Bahraini authorities or its shareholders. ABG is about 75%-owned and controlled by Saudi businessman 
Sheikh Saleh Abdullah Kamel.


"The CreditWatch placement reflects the uncertainties surrounding the impact of the unstable political environment in the MENA region on ABG's SACP. To resolve the CreditWatch placement, we will closely monitor the short-term resolution of the CreditWatch placements on Bahrain, Egypt, and Tunisia, as well as the situation in Jordan and Algeria, ultimately re-assessing the group's SACP in light of the medium-term implications of the ongoing changes in these countries. We could consider lowering the long-term rating on ABG by more than one notch should we deem the implications of the unstable political environment in the MENA region to be durably and markedly detrimental to the group's creditworthiness.

Related Criteria And Research

  • Kingdom of Bahrain Ratings Lowered By One Notch To 'A-/A-2' On Heightened Political Risk; On CreditWatch Negative, Feb. 21, 2011

  • Negative Rating Actions Taken On Jordan-Based Arab Bank PLC And Jordan Islamic Bank Following Sovereign Downgrade, Feb. 10, 2011

  • Jordan's Local Currency Ratings Lowered To 'BB+/B'; Foreign Currency Ratings Affirmed; Outlook Negative On Both, Feb. 8, 2011

  • Arab Republic of Egypt Ratings Lowered On Continuing Unrest; Long-Term Ratings On Watch Negative, Feb. 4, 2011

  • Tunisia's Jasmine Revolution Is Adding To Political And Fiscal Risks In The MENA Region, Jan. 27, 2011

  • Republic of Tunisia Ratings Put On Watch Negative On Continuing Uncertainty; Local Currency Rating Lowered To 'BBB+', Jan. 18, 2011

  • Use Of CreditWatch And Outlooks, Sept. 14, 2009.

  • Bank Rating Analysis Methodology Profile, March 18, 2004

  • Sovereign Risk For Financial Institutions, Feb. 16, 2004

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal atwww.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.  Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.

-Ends-

Analyst contacts:
Paul-Henri Pruvost, Paris
Goeksenin Karagoez, Paris

Press Office Contacts:
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© Press Release 2011