Standard & Poor's Ratings Services has said that it had revised its outlook on Bahrain-based Al Baraka Banking Group (ABG) to stable from negative.

At the same time, it affirmed the 'BB+' long-term and 'B' short-term counterparty credit ratings on the bank, said a report in the Gulf Daily News (GDN), our sister publication.

"The outlook revision reflects our expectations that ABG's capitalisation will improve in the next quarters, which would allow it to maintain a Standard & Poor's risk-adjusted capital (RAC) ratio above five per cent," the agency said.

"It also reflects the lower pressure in the operating environments - namely Egypt and Jordan - of some of ABG's major subsidiaries.

"Absent this improvement within the expected time frame, we would reassess the components of our ratings on ABG and may revise our assessment on capital and earnings to weak from moderate," it added.

"The starting point for assigning our ratings on ABG is the group's 'BB' anchor, which we derive based on our view of economic risks in the countries in which it operates.

"We view the group's business position as strong, reflecting its superior geographic diversification in earnings compared with peers, as well as the competitive benefits it derives from its Islamic status.

"Although we consider the bank's strategy to be aggressive, as it is driven by growth, risks are mitigated by the quality of management and knowledge of its key markets.

"Our assessment of capital and earnings is moderate, based on our anticipation that our RAC ratio before adjustments will remain above 5pc in the next 12-18 months, excluding any deterioration in the sovereign ratings or economic risk scores in key countries of operations and factoring in the expected improvement in capitalisation that is expected to take place in the next quarters.

"We consider the group's risk position to be adequate, reflecting high granularity in the financing book, resilience in asset quality, despite operations in risky countries and lower pressure on major subsidiaries, namely those in Egypt and Jordan," it said.

"We view funding as average and liquidity as adequate.

"As a wholesale bank licensed in Bahrain since 2002, ABG has no access to its central bank's funding mechanisms, but all subsidiaries are self-funded and would have access to funding mechanisms provided by their domestic authorities in case of need.

"The group holds what we regard as a sound portion of its assets in cash and bank placements.

"Based on all these factors, we assess the group credit profile at 'BB+'.

"Standard & Poor's outlook on ABG is stable," it added.

"Our outlook reflects our expectation that the group's capitalisation will improve in the next quarters, enabling it to maintain a Standard & Poor's RAC ratio above 5pc, while we expect asset quality and financial performance to remain broadly stable over the next 12 months.

"We would raise the ratings if we see the group's risk position improving, while we maintain our moderate assessment of capital and earnings.

"This could happen in a scenario in which we are comfortable that the group's RAC ratio will consistently remain above five per cent, the operating environment in Turkey has improved significantly, and the group is maintaining its asset quality indicators at current levels," the agency added. - TradeArabia News Service