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-Capital Intelligence maintains Arab Intl Bank's ratings.

BANKING AND CREDIT NEWS-October 20, 2010--Capital Intelligence maintains Arab Intl Bank's ratings(C)2010 M2 COMMUNICATIONS

20 October 2010 - Capital Intelligence confirmed on Tuesday the BBB- financial strength rating (FSR) of Egyptian Arab International Bank (AIB) and upheld all its other ratings as well.

The agency issued the following press release:

Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Egypt-based Arab International Bank's (AIB) Financial Strength Rating at BBB-.

The ratings action is based on AIB's strong capital adequacy and liquidity as well as its improving asset quality, despite the constraints derived from the bank's limited charter and wholesale business model.

The bank's Foreign Currency Long- and Short-term ratings are also maintained at BBB- and A3 respectively.

The Support Rating is affirmed at 2 in view of the strong likelihood of shareholder support.

All the ratings carry a Stable outlook.

AIB's ratings are underpinned by its capital adequacy, which has improved to a strong level following a rights issue subscribed by its core Arab sovereign shareholders; its very strong liquidity derived from the low share of loan assets within the balance sheet; more than full loan-loss reserve coverage and recovery in net profit growth.

The ratings are constrained by AIB's exposure to concentration risks on both sides of the balance sheet, largely derived from AIB's wholesale business model as well as by its charter which precludes the bank from transacting in local currency.

As a result, the bank holds significant amounts of low yielding bank placements in foreign currency leading to a higher counterparty risk profile relative to other Egyptian banks. In 2009 AIB received a substantial capital injection from core shareholders which raised capital adequacy to a strong level following net losses and fair value charges suffered in 2008 on the investment book.

The bank's liquidity remains very strong, despite a contraction in customer deposits induced by reduced demand for foreign currency placements.

In 2009 the bank sold part of its investments in securities and placed the proceeds with banks. Profit growth resumed on the back of a sharp drop in funding costs leading to higher net interest income, a recovery in non-interest income to pre-crisis levels and controlled growth in costs. In the current year growth in net profit continues at a very good pace as the bank modifies its asset allocation by expanding its loan book at a faster rate from a very low base, while asset quality remains very sound.

AIB was established under international treaty by five Arab sovereigns in 1974 as an Egypt-based offshore banking unit.

The principal shareholders remain Arab Republic of Egypt and the State of Libya with a 38.76% shareholding each, followed by Qatar with 4.984%, Abu Dhabi with 12.503% and Oman with 2.49%, according to its statute the bank falls outside the supervision of the Central Bank of Egypt and is exempt from taxation, exchange controls, as well as auditing and accounting regulations pertinent to domestic banks. As it may not carry out transactions in EGP, unlike other Egyptian banks AIB does not hold a portfolio of local currency treasury bills, so it invests its liquidity with local and foreign banks. It also has a sizeable marketable investment portfolio.

AIB is now seeking to rebalance its business model by increasing its lending business with corporates. AIB owns 46% of Societe Arabe Internationale de Banque (SAIB) as well as a 37.7% share in Suez Canal Bank. AIB also holds equity stakes in specific real estate or other business projects. The bank operates seven branches in Egypt, reflecting the predominantly wholesale nature of its business, but also obtains a substantial amount of customer deposits from individual clients.

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Publication:M2 Banking & Credit News (BCN)
Geographic Code:7EGYP
Date:Oct 20, 2010
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