The foreign currency rating for Jordan Islamic Bank (JIB) has been revised from ‘BBB- / A-3’ (Triple B Minus / A – Three) to ‘BB+ / A-3’ (Double B Plus / A – Three) on account of developing pressures on the economic front, given a slowdown in the economy and persistent current account deficits. Concurrently the local currency rating has also been revised from ‘BBB / A-3’ (Triple B / A- Three) to ‘BBB – / A-3’ (Triple B Minus / A- Three).
Within the context of the Jordanian economy, JIB remains a fundamentally strong institution and also derives strength from the financial standing of its major shareholder i.e. Al Baraka Banking Group (ABG) which owns 66% shares in the bank. ABG, as of June 30, 2011 had assets and equity of $16.5bn, and $1.83bn respectively, with presence in more than 10 countries.
The board of directors of JIB comprises eminent professionals and the senior management team has also remained stable. JIB is amongst the five largest banks in Jordan, with a market share (assets) of 7.4% as at FYE’10 and is the largest Islamic bank in the country. As such the bank has a strong franchise value, depicted also in the composition and stability of its deposit base.
Shareholders’ equity stood at $272.7m as at FYE’10, depicting a capital adequacy ratio (CAR) of 12.9%. Equity for September 30, 2011 is $281.1m. In the last quarter of 2010, CBJ has implemented a new mechanism for calculation of CAR of Islamic banks. According to the new mechanism, JIB’s CAR stands around 21.6% (and 20.8% as at 3QE’;11), against a minimum requirement of 12%.
Over the last 5 years, JIB has increased focus on financing in the areas of corporate and SMEs. Asset quality indicators have come under pressure, due to the slowdown in the economy, but continue to compare favorably with industry experience. In relation to the bank’s loss absorption capacity, expected loan losses, as manifested in impairment ratios, do not pose a significant risk to the bank.
The bank has remained profitable over the years. Earnings have largely remained consistent over the last couple of reporting periods, having fallen from a peak of 2008. Return trends continue with ROAA falling slightly further at 1.03%.
The bank has a fairly liquid balance sheet, with liquid assets in relation to total borrowings and deposits being 48% as at 3QE’11. Retail deposits comprised 87% of the deposit base as at FYE’10, providing further support to liquidity profile of the bank.
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