We are assigning our 'BB/B' long- and short-term counterparty credit ratings to Jordan Islamic Bank (JIB).

The long-term rating on JIB is one notch higher than its stand-alone credit profile because we consider it to be a strategically important subsidiary of Bahrain-based Albaraka Banking Group (B.S.C.). As such, we factor in potential extraordinary support from the parent in case of need.

The stable outlook reflects our expectation that JIB's business and financial profile should not change substantially over the medium term.

PARIS (Standard & Poor's) July 19, 2010--Standard & Poor's Ratings Services said today it has assigned its 'BB/B' long- and short-term counterparty credit ratings to Jordan Islamic Bank (JIB). The outlook is stable.

The ratings on JIB are primarily constrained by the fact that the bank operates in the Hashemite Kingdom of Jordan (foreign currency BB/Stable/B, local currency BBB-/Stable/A-3), which creates high credit risk. We also think that the bank has barely adequate capitalization.

"Mitigating these factors are JIB's overall resilience, satisfactory funding and liquidity profile, which we believe is supported by its strong retail franchise, and leading commercial position in the Islamic banking market in Jordan," said Standard & Poor's credit analyst Paul-Henri Pruvost.

JIB is 66% owned by Bahrain-based Albaraka Banking Group (B.S.C.)(ABG, BBB-/Stable/A-3).JIB is ABG's second-largest subsidiary, one of only a few that holds a sizable domestic presence, and comprised about 23% of total group assets and profits at year-end 2009. JIB, which held total assets of $3.2 billion on March 31, 2010, purely focuses on its domestic market. The bank benefits from a long track record of sound entrenchment in both the corporate and retail segments. Indeed, most of its financing tracks the main economic sectors. Construction, retail, and trade, for example, comprised about one-third, one-fifth, and one-third of total financing respectively. JIB's strategy emphasizes sustained growth and further enhancement of its systems and integration within the group, in our view. Although we acknowledge the bank's good track record in terms of asset quality, we remain cautious about the risks related to its rapid growth in a country with high economic risks.

JIB finances its entire financing portfolio with Sharia-compliant funding instruments, including profit-sharing investment accounts. If such a short-term funding mix proves less stable than expected in the wake of a major financial stress, we note that the bank has a very high level of liquidity to mitigate mild shocks. In addition, we acknowledge the stability and sound growth in the bank's deposit base, although it is slower than financing growth in recent years.

"The stable outlook reflects our expectation that JIB's business and financial profile will remain relatively unchanged over the medium term," said Mr Pruvost. We would take a negative view of any deterioration in the bank's financial profile, which could stem from JIB's sustained growth objectives in a still uncertain operating environment. We could also align the ratings with the bank's SACP if we were to revise downward the potential for extraordinary parent support. A positive rating action appears unlikely in the foreseeable future. It would require an upgrade of the sovereign foreign currency rating as well as a substantial improvement in the bank's financial profile, especially its capitalization.

RELATED CRITERIA AND RESEARCH

  • Group Methodology, April 22, 2009

  • FI Criteria: Bank Rating Analysis Methodology Profile, March 18, 2004

  • The Meaning Of Ratings For Islamic Financial Institutions, Oct. 25, 2006 

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About Standard & Poor's in the GCC
Standard & Poor's is the leading provider of financial market intelligence to customers in the Gulf's credit risk management, wealth management, and data and information markets. Since entering the region in the late 1980's, Standard & Poor's currently has public ratings on more than 100 issuers. In equity markets, Shariah-compliant versions of Standard & Poor's global and regional equity market indices - S&P 500, S&P Europe 350, S&P Japan 500 and S&P/IFCI GCC - have created new opportunities for Islamic investors to benchmark their international investments and for asset managers to create new investment products serving the Islamic community. Standard & Poor's Fund Services launched a qualitative fund management rating service for regional asset managers in 2007 assigning 17 Fund Management Ratings. For further details on Standard & Poor's regional capabilities please visit www.gcc.standardandpoors.com

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