TEXT-Fitch affirms Bahrain's Ahli United Bank at 'BBB+'

Mon Jan 9, 2012 1:00pm GMT

(The following statement was released by the rating agency)

Jan 09 - Fitch Ratings has affirmed Ahli United Bank's (AUB) Long-term Issuer Default Rating (IDR) at 'BBB+' and Viability Rating (VR) at 'bbb+'. The Outlook on the Long-term IDR is Stable. A full list of rating actions is at the end of this release.

The Long- and Short-term IDRs and Support Rating reflect the high probability of support for AUB from its core shareholders, if needed. The State of Kuwait, through the Public Institution for Social Security, is the largest shareholder with a 18.5% stake and holds a direct stake in the bank's subsidiary in Kuwait. The Kingdom of Bahrain holds a 10% stake through the Social Insurance Organisation. The IDRs are constrained by Bahrain's Country Ceiling of 'BBB+'.

The bank's VR reflects its solid operating profit despite the challenging operating environment in some of its markets, sound liquidity and asset quality, and the successful expansion of its franchise. Its sources of funding are diversified. However, customer deposits are concentrated and, to a large extent, short-term, but have proved stable.

Impaired lending was little changed at 2.5% of gross loans at end-Q311 (2010: 2.4%), despite socio-political unrest in Bahrain and elsewhere in the region. Loan loss coverage strengthened to 137% (2010: 119%). Funding mainly consists of customer deposits, but the bank also relies on interbank deposits and medium-term debt. Liquidity benefits from substantial interbank placements and a large portfolio of marketable securities. Its Tier 1 capital ratio improved to 11.5% at end-H111, following the issue of USD125m of mandatory convertible preference shares. The Tier 1 ratio is below regional norms, but reflects the bank's aim to maintain a balanced mix of Tier 1 and Tier 2 capital. The Fitch core capital ratio, which does not include preference shares, stood at 10.5% at end-H111.

AUB was formed in 2000 and subsequently acquired stakes in banks in Kuwait, Qatar, Iraq, Egypt, Oman and Libya. It is also present in other Gulf/Middle Eastern countries through its brokerage subsidiary based in Kuwait, and has a wholly-owned subsidiary in the UK. Its long-term strategy is to pursue selective expansion in the Gulf/Middle East, through organic growth and acquisition, to create a leading regional diversified financial services group. However, in the current operating environment, its main focus has been on maintaining strong liquidity, asset quality and cost control.

The rating actions are as follows:

Long-term IDR affirmed at 'BBB+' with Stable Outlook

Short-term IDR affirmed at 'F2'

Viability Rating affirmed at 'bbb+'

Individual Rating affirmed at 'B/C'

Support Rating affirmed at '2'

Long-term senior unsecured debt affirmed at 'BBB+'

Short-term senior unsecured debt affirmed at 'F2'

Subordinated debt affirmed at 'BBB'