TEXT-S&P takes rating actions on Arab Bank group entities

Overview  
     -- We have reviewed the wider implications for Jordan-based 
		Arab Bank
		  
group' entities of risks that we consider to be high in several Middle East  
and North Africa (MENA) countries where the group is present. Risks for the  

		Arab Bank
		 group's financial profile are increasing, in our opinion, owing to  
continuing political uncertainties and social tensions. 
     -- We have revised our assessment of the group's risk position to  
moderate and lowered our group credit profile assessment to 'bbb' from 'bbb+'. 
     -- Consequently, we are lowering our long-term ratings on Europe Arab  
Bank PLC and 
		Arab Bank
		 Australia Ltd., the foreign subsidiaries of the group's  
main operating entity, 
		Arab Bank
		 PLC   , to 'BBB' from 'BBB+' and 
affirming the 'A-2' short-term ratings. The outlooks are negative. 
     -- We are also lowering our ratings on 
		Arab Bank
		 PLC's branches in  
Bahrain, Dubai, Qatar, and Singapore to 'BB/B' to equalize them with the  
ratings on the parent. The outlooks are negative. 
     -- We are affirming our 'BB/B' long- and short-term ratings on 
		Arab Bank
		  
PLC, with a negative outlook. 
     -- The negative outlooks on 
		Arab Bank
		 PLC and its foreign branches mirror  
the negative outlook on Jordan. The negative outlook on 
		Arab Bank
		 PLC's  
foreign subsidiaries takes into account the negative outlook on the parent, as  
well as the downward pressure on the 
		Arab Bank
		 group's creditworthiness owing  
to its large exposure to the MENA region. 
 
Rating Action  
On July 3, 2012, Standard & Poor's Ratings Services took the following rating  
actions on various subsidiaries and foreign branches of Jordan-based 
		Arab Bank
		  
group: 
     -- We affirmed our 'BB/B' long- and short-term counterparty credit  
ratings on the group's main operating entity, 
		Arab Bank
		 PLC. The outlook  
remains negative. 
     -- We lowered our long-term counterparty credit ratings on subsidiaries  
Europe 
		Arab Bank
		 PLC and 
		Arab Bank
		 Australia Ltd. to 'BBB' from 'BBB+'. We  
affirmed our 'A-2' short-term ratings on the two banks. The outlooks are  
negative. 
     -- We lowered our long- and short-term counterparty credit ratings on  
foreign branches 
		Arab Bank
		 PLC (Singapore), 
		Arab Bank
		 PLC (Dubai), and Arab  
Bank PLC (Qatar) to 'BB/B' from 'BBB+/A-2' and 
		Arab Bank
		 PLC (Bahrain) to  
'BB/B' from 'BBB/A-3'. The outlooks on these four branches are negative. 
 
Rationale  
The rating actions follow our review of the wider implications for  
Jordan-based 
		Arab Bank
		 PLC and several related entities (together the Arab  
Bank group) of the continuing social tensions, political uncertainties, and  
resulting economic challenges in some of the Middle East and North Africa  
(MENA) countries where the group operates. As a result of our review, we have  
revised our assessments of the group's risk position to "moderate" from  
"adequate" and of its group credit profile (GCP) to 'bbb' from 'bbb+'. 
 
We expect the operating environment and the credit conditions in various MENA  
countries, especially in North Africa, to remain unfavorable for the group's  
business and financial profiles. We could consequently consider revising our  
economic risk scores of the respective domestic banking systems, in accordance  
with our Banking Industry Country Risk Assessment (BICRA) methodology. This  
would in turn increase the likelihood of a further downward revision of the  
group credit profile (GCP).  
 
Concurrently, the downgrades of the four foreign branches of 
		Arab Bank
		 PLC  
reflect our opinion of the close correlation between the creditworthiness of  
the branches and the parent. Owing to their legal status as foreign branches  
rather than separately established subsidiaries, and their closer management  
ties with their parent, the distinction between the assets and liabilities of  
these branches and those of the parent is less than for the group's foreign  
subsidiaries.  
 
The ratings on subsidiaries Europe 
		Arab Bank
		 PLC and 
		Arab Bank
		 Australia Ltd.  
reflect our 'bbb' GCP for 
		Arab Bank
		 group. The ratings on the group's main  
operating entity, Jordan-based 
		Arab Bank
		 PLC, and its foreign branches are  
three notches below the GCP as we cap these ratings at the level of the  
sovereign ratings on Jordan (BB/Negative/B). 
 
In our opinion, the 
		Arab Bank
		 group has shown a good financial and operational  
resilience since early 2011 against a turbulent backdrop. For instance, it has  
improved profitability and maintained a moderately stable financial profile  
over the period. The group, including its sister bank, 
		Arab Bank
		 Suisse (not  
rated), in Switzerland, continues to maintain a high liquidity buffer.  
 
Still, 
		Arab Bank
		 group's sensitivity to sovereign-related risks in the MENA  
region is increasing since the group has about 45% of its assets in countries  
rated lower than 'BBB-'. Among these, Jordan and Egypt account for the largest  
portion. The group's direct exposure to these two countries--in the form of  
local currency bonds and bills but excluding central bank placements--stood at  
about $3.2 billion or almost 40% of its total equity on Dec. 31, 2011.  
Mitigating this to a degree are the short-term maturities of this exposure. 
 
The GCP is derived from our 'bb+' anchor for 
		Arab Bank
		 group, and our view of  
the group's "very strong" business position, "adequate" capital and earnings,  
"moderate" risk position, "above average" funding, and "strong" liquidity, as  
our criteria define these terms. 
 
Our bank criteria use our Banking Industry Country Risk Assessment (BICRA)  
economic risk and industry risk scores to determine a bank's anchor, the  
starting point in assigning an issuer credit rating (ICR). The 'bb+' anchor  
for the group is based on our industry risk score of '6' for Jordan (on a  
scale of 1-10, '1' being the lowest risk and '10' the highest), where its main  
operating entity is registered and regulated, and a blended economic risk  
score close to '6'. We derive the latter from the weighted average of economic  
risk scores of countries where the group operates by looking at the  
geographical breakdown of its gross funded and unfunded exposures. Therefore,  
our assessment of the creditworthiness of the group takes into account its  
exposure to countries that have been facing significant political and economic  
pressure. At year-end-2011, the group had about 20% of its assets in Jordan  
and about 25% in countries that we rate below 'BBB-'. 
 
Since January 2011, when social uprisings started in various MENA countries,  
we have taken negative rating actions on various sovereigns, including Jordan,  
Egypt (B/Watch Neg/B), and Tunisia (BB/Stable/B). Our outlooks on the  
long-term ratings on many sovereigns in the region, including Jordan, remain  
negative.  
 
Outlook 
The negative outlooks on 
		Arab Bank
		 PLC and its foreign branches mirror that on  
Jordan. According to our criteria, we cap our ratings on these entities at the  
level of the sovereign ratings on Jordan. This reflects 
		Arab Bank
		 PLC's  
incorporation in Jordan and its large exposure to the sovereign. We  
consequently expect the ratings on the bank and its branches to remain closely  
correlated with the sovereign's creditworthiness. Any downgrade of the  
sovereign would trigger a similar downgrade of 
		Arab Bank
		 PLC and its four  
foreign branches.  
 
A positive rating action on Jordan would trigger the same rating action on  

		Arab Bank
		 PLC and its four foreign branches. However, this would not trigger  
an upward revision of our GCP for 
		Arab Bank
		 group. 
 
The negative outlooks on Europe 
		Arab Bank
		 PLC and 
		Arab Bank
		 Australia Ltd.  
take into account the following: 
     -- Our negative outlook on the parent entity. A negative rating action on  
the parent would likely trigger a negative rating action on these two entities. 
     -- The downward pressure on the GCP owing to our negative outlooks on  
several countri

es where the 
		Arab Bank
		 group operates. Therefore, there is an  
increased likelihood of deterioration in our economic risk scores in these  
countries, which could negatively affect the group's anchor, capitalization,  
and subsequently the GCP. 
 
We would lower the GCP and our ratings on these two entities if the following  
scenarios were to materialize and led us to revise our assessment of the  
group's business position or risk position: 
     -- A change in risk appetite that would trigger more aggressive growth  
and significantly alter the group's financial profile. 
     -- Further deterioration in the operating environment in countries where  
the group operates, especially Jordan.  
     -- A lowering of the anchor, which could be triggered by changes in Arab  
Bank group's asset mix by country. This could occur, for instance, if the  
share of countries we consider to be higher risk, notably in North Africa,  
were to increase significantly. 
 
At the same time, we believe that the group will retain its superior  
geographic diversification in the region and stick to its current strategy,  
which is more conservative than for most peers. Under our base-case scenario,  
the group's projected risk-adjusted capital (RAC) ratio before adjustments  
will likely remain close to 10% over the next two years. An upward revision of  
the group's GCP appears unlikely within the rating horizon (24 months) as it  
would require a major improvement in the credit conditions in the group's  
operating environment, and the group's maintenance of capitalization, funding,  
and liquidity at current levels. 
 
Ratings Score Snapshot 
Issuer Credit Rating          BB/Negative/B 
           
 
SACP                          bbb   
 Anchor                       bb+   
 Business Position            Very Strong (+2)     
 Capital and Earnings         Adequate (0)    
 Risk Position                Moderate (-1) 
 Funding and Liquidity        Above average and Strong (+1) 
 
Support                       0 
 GRE Support                  0 
 Group Support                0 
 Sovereign Support            0 
 
Additional Factors            -3 
 
Related Criteria And Research 
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 
     -- Banking Industry Country Risk Assessment Methodology And Assumptions,  
Nov. 9, 2011 
     -- Group Rating Methodology And Assumptions, Nov. 9, 2011 
 
Ratings List 
 
Downgraded; Outlook Action; Ratings Affirmed 
                                        To                 From 

		Arab Bank
		 Australia Ltd. 
Europe 
		Arab Bank
		 PLC 
 Counterparty Credit Rating             BBB/Negative/A-2   BBB+/Stable/A-2 
 Certificate Of Deposit                 BBB/A-2            BBB+/A-2 
 

		Arab Bank
		 PLC (Bahrain) 
 Counterparty Credit Rating             BB/Negative/B      BBB/Negative/A-3 
 Certificate Of Deposit                 BB/B               BBB/A-3 
 

		Arab Bank
		 PLC (Dubai) 

		Arab Bank
		 PLC (Singapore) 

		Arab Bank
		 PLC (Qatar) 
 Counterparty Credit Rating             BB/Negative/B      BBB+/Stable/A-2 
 Certificate Of Deposit                 BB/B               BBB+/A-2 
 
Ratings Affirmed 
 

		Arab Bank
		 PLC 
 Counterparty Credit Rating             BB/Negative/B       
 Certificate Of Deposit                 BB/B                  
 
 
Complete ratings information is available to subscribers of RatingsDirect on  
the Global Credit Portal at  All ratings affected  
by this rating action can be found on Standard & Poor's public Web site at  
 Use the Ratings search box located in the left  
column. 
 
 (New York Ratings Team) 
 ((e-mail: pam.niimi@reuters.com; Reuters Messaging: 
pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;))