Rating downgrade triggered by reassessment of Jordan's systemic support indicator; BFSR affirmed at C-

Limassol, December 07, 2009 -- Moody's Investors Service has today downgraded the long-term local currency (LC) deposit rating of Housing Bank for Trade and Finance (HBTF) to Baa1 from A3 in light of its review of the systemic support indicator for the banking system in Jordan. All the other ratings of the bank, including the C- bank financial strength rating (BFSR) -- mapping to a Baa2 Baseline Credit Assessment (BCA) --the Ba3/Not Prime foreign currency (FC) deposit ratings (constrained bythe FC deposit sovereign ceiling), and the Prime-2 LC short-term deposit rating, remain unchanged. All ratings have a stable outlook.

Earlier this year, Moody's published a Special Comment on its plans to carry out a global review of the capacity of governments and centralbanks to support their banking systems, entitled "Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries", available on www.moodys.com.

Consistent with the analytical criteria specified in the Special Comment,and given Jordan's current situation and future prospects, Moody's has changed the systemic support input for Jordanian banks' ratings to Baa2 from the A3 local currency deposit ceiling. The new Baa2 systemic support anchor for Jordanian banks is placed one notch above the Baa3 local currency government debt rating.

Today's downgrade of HBTF's local currency deposit rating thus reflects the new systemic support anchor for Jordan rather than the bank's own financial position, which is strong enough for its BFSR to be maintained at the C- level. Despite the pressure on the bank's profitability this fiscal year due to high provisioning costs stemming from increased non-performing loans (NPLs), HBTF remains a very strongly capitalised bank with robust liquidity and an excellent funding profile through customer deposits with a leading position in savings accounts in Jordan. Indicatively, the bank's capital adequacy ratio (CAR) at the end of September 2009 stood at a high 23.4%, while the bank had a loan-to-deposit ratio of only 53.6% and an annualised return on assets of 1.2%. It should also be noted that the two other Jordanian banks rated by Moody's have not been affected by this systemic support adjustment.

In the Special Comment, Moody's noted that the appropriate reference rating for the capacity of a national government to provide support to banks during a prolonged and widespread crisis would be aligned with or constrained by the government's own debt rating. However, Moody's also  believes that this rating could be adjusted, usually positively, to  reflect the non-fiscally dependent measures that many central banks and  governments can deploy to support banks.

In deciding whether the systemic support indicator can be higher than the  local currency debt rating of the national government, Moody's considered  a number of factors for each banking system. These are: the size of the  banking sector relative to the government's resources; the level of  stress in the banking system and in the economy; the FC obligations of  the banking system relative to the government's own FC resources;  political and historical patterns; and the possibility of any drastic  shift in government priorities.

Moody's regards the systemic importance of the Jordanian banking system  as high given that banking assets are more than twice the size of the country's economy (GDP), with a weighted average BFSR of C- for the rated  Jordanian commercial banks. The level of stress in the Jordanian banking  system has increased somewhat due to the slowdown in the local economy: the proportion of gross NPLs has grown rapidly in recent quarters,  reaching around 6.4% as of June 2009 from 4.2% in December 2008, and is expected to increase further to 7.5% by year-end. However, the Jordanian  banking system remains well capitalised with a minimum CAR of 12% set by  the regulators and a favourable funding profile that is mainly geared  towards customer deposits.

Moody's notes that the impact of the global downturn on the Jordanian economy has not been particularly significant despite declines affecting export-oriented sectors and real-estate and construction related projects. The rating agency also notes that the banking system's FC obligations relative to the overall economy and the Central Bank of Jordan's FC reserves are not sizeable, and are mainly in the form of deposits denominated in FC as well as FC borrowings that banks usually obtain from foreign banks and other international agencies.

Political and historical evidence suggests that the Jordanian governmentis likely to show high support towards its banking system, while in Moody's opinion its stance towards supporting the systemically important banks has not changed and is unlikely to change in the foreseeablefuture. In addition, Moody's notes that Jordan was quite supportive towards the banking system during 2009 by taking pre-emptive measures to maintain confidence and support the domestic money markets by declaring a full deposit guarantee for both domestic and foreign banks operating in Jordan.

The Baa2 systemic support input for Jordanian banks is one notch above the Baa3 local currency government debt rating. This uplift ispredicated on Moody's view of a "medium" risk of a system-wide banking crisis as well as a "medium" likelihood of the government ring-fencing its own fiscal position from the banking system. In addition, the central bank's good regulatory and supervisory framework provides some added comfort regarding Jordan's ability to provide systemic support to its banking system.

The last rating action on Housing Bank for Trade and Finance was taken on June 11, 2009 when its A3 long-term LC deposit rating was placed on review for a possible downgrade.

The principal methodologies used in rating this issuer are "Bank Financial Strength Ratings: Global Methodology", and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology". These can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Amman, Jordan Housing Bank for Trade and Finance had total assets of JOD5.7 billion (US$8 billion) as of end-September 2009.

- Ends -

Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Limassol
Nondas Nicolaides
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

© Press Release 2009