Manama, June 30, 2013
Islamic International Rating Agency (IIRA) has assigned a national scale rating of A+/A-1 (SR) (A plus/A-One) to Bank AlJazira (BAJ or 'the bank'). On the international scale, IIRA has assigned a foreign currency and local currency rating of A-/A-2 (A minus/A-Two). Outlook on the rating is 'Stable'.
The fiduciary score has been assessed in the range of '71-75', reflecting adequate fiduciary standards. The fiduciary score is an aggregation of scores assigned to its three sub-sections, namely Corporate and Shari'a Governance, and Asset Manager Quality.
Founded in 1975, Bank AlJazira is one of the four Islamic Banks in the Kingdom of Saudi Arabia with a growing market share which stood at 3% at year-end 2012. Shareholding of the bank is diversified with significant stakeholders representing prominent business groups and families in Saudi Arabia. The assigned credit ratings incorporate the bank's improving asset quality & standalone profitability as well as an adequate liquidity profile and capitalization levels. Business diversification both in terms of fund sourcing and asset selection will add to the institution's resilience.
BAJ has grown at a CAGR of 19% in terms of asset size over the last three years through continuous expansion in branches and business acquisition. Following a shift in business focus in 2008, Bank AlJazira has since broadened its business base with an enhanced presence in the corporate segment and a growing exposure towards the retail market. BAJ, like other banks in the country, remains sensitive to concentration related risks. While large single exposures are likely to persist in the portfolio, segment-wise broadening will overtime reduce its possible impact, in case of impairment in large financings. Deposits remain the key funding source of the bank representing around four-fifth of the bank's funding base, of which, a sizeable portion comprises non-remunerative deposits. Spreads have remained under pressure on account of a low profit rate environment. Proportional increase in retail business has contributed to maintaining spreads, while remaining narrow vis-à-vis the bank's expense base. Asset growth is expected to propel profitability levels going forward, which are likely to increase in quantum terms over the foreseeable future.
The bank has a well developed corporate governance framework in place with effectively functioning board and management level committees, strong focus towards processes and procedures and a continually evolving internal control environment. The human resource function has posted significant improvements to employee satisfaction and working environment. Greater independence at board level would be more in line with best practices. Moreover, stability in top management will be essential to continuity in institutional development.
The bank, under the directives of its Board of Directors, had achieved full conversion into an Islamic bank in 2007. It has an eminent Shari'a Board and a comprehensive Shari'a function, divided into sub-functions and covering Shari'a compliance, Shari'a Board Secretariat and Research and Development Center. The latter is also responsible for ongoing process improvement. The department's scope has been extended to controls and processes in general, rather than confining it to transactions. However, the product suite of BAJ, as is the case with Islamic banks in Saudi Arabia, is less reliant on participatory modes of financing and fundraising.
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For further information on this rating announcement, please contact Ms. Elham Mohammed or the undersigned at +973-17211606 or fax at +973-17211605.
© Press Release 2013
