Fitch Ratings downgraded United Arab Emirates (UAE)-based Bank of Sharjah (BOS)'s individual rating to C from B/C. At the same time, the agency has affirmed the bank's Long-term foreign currency, Short-term foreign currency, and Support ratings at BBB+, F2 and 2 respectively. The Outlook on the Long-term rating is Stable.
The downgrade reflects management's planned expansion into other Emirates to diversify its relatively small franchises, as well as uncertainties surrounding the operational policies after the changes in its ownership.
BNP-Paribas previously owned a 19.4 percent stake in BOS but sold it to local investors in 2002 when it could not obtain majority ownership. This ownership had previously underpinned the Individual rating.
BOS had benefited from a long standing technical assistance agreement with BNP-Paribas, under which BOS received support for core banking systems as well as operational procedures and policies.
Additionally, the banking environment is very competitive, making it difficult for BOS to obtain quality business. Although profits have been stable, margins have deteriorated as interest rates declined, due to the bank's relatively short-term funding structure.
BOS had total assets of $605 million at end-2002 and maintained three branches. The bank's non-performing loans were fully covered by reserves and its loan portfolio is centered in corporate credits, nearly one-third of which are to government and quasi-government entities.
BOS had a Tier I capital adequacy ratio of 23.1 percent at end-2002. After the change in ownership, shareholders raised additional capital in 2003 to enhance BOS's regulatory capital ratio and position it for growth. Management has stated that expansion will be both organic and by acquisition. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
