Tuesday 27, December 2016 by Robin Amlôt

Housing Bank for Trade & Finance ratings affirmed, outlook stable

Capital Intelligence Ratings (CI) has affirmed the Long- and Short-Term Foreign Currency Ratings (FCRs) of Housing Bank for Trade & Finance (HBTF) at ‘BB-’ and ‘B’, respectively. The bank’s Long-Term FCR is constrained by the ratings assigned to the sovereign (‘BB-’/‘B’/‘Stable’), reflecting HBTF’s base of operations in the Kingdom of Jordan and its relatively high exposure to the Jordanian sovereign, mainly in the form of Jordanian government paper and balances with the Central Bank of Jordan (CBJ).

Accordingly, the bank’s FCRs remain highly correlated with the sovereign’s creditworthiness. The downgrade of the sovereign or any improvement in Jordan’s creditworthiness would have a corresponding effect on the bank’s FCRs. The Outlook for the FCRs remains ‘Stable’, in line with the Outlook for Jordan’s Sovereign FCRs. The Support Rating is set at ‘3’, in view of the high likelihood of official support in case of need from the CBJ, as well as from the institutional shareholders including Qatar National Bank, who are expected to be willing to support the bank in the unlikely scenario of financial distress. The shareholders have repeatedly fully subscribed to a number of rights issues over the years.

The Financial Strength Rating (FSR) is affirmed at ‘BBB+’, with a ‘Stable’ Outlook, underpinned by the bank’s strong liquidity metrics and solid capital adequacy ratio (CAR), which continue to compare favourably in Jordan’s liquid and well capitalized banking system. Also supporting the FSR is the bank’s better than sector average operating profitability, reflecting a still solid net interest margin (NIM) – notwistanding the decline in previous years – as well as favourable cost efficiency. This, in turn, has safeguarded HBTF’s capacity to absorb considerable provision charges over the recent past leading to the best loan-loss reserve (LLR) coverage for non-performing loans (NPLs) in the banking system. HBTF’s good and better than peer average return on average assets (ROAA) reflects the sound quality of earnings − a large part of which are derived from retail banking and show a fair degree of geographical diversification.

HBTF is a systemically important institution in the Jordanian banking system commanding significant market shares in assets (14.5 per cent) and customer deposits (14.7 per cent) at end H1 2016. HBTF has the biggest branch network and the largest client base (over one million customers) in Jordan. The bank continues to rank second behind Arab Bank Plc based on market share. The bank’s nationwide branch network effectively gathers relatively cheap as well as large volumes of non-interest bearing retail customer deposits. The deep and expanding customer deposit base alongside a comparatively small loan portfolio – despite the sharp increase in 2015 – has consistently produced a highly liquid balance sheet. Although key loan based ratios tightened in 2015 and into H1 2016 as net loans expanded at a much faster pace than customer deposits – the latter registering negative growth in H1 2016 – they are currently similar with the sector average and very solid in a global context. Customer deposits retreated moderately in H1 2016, as the bank opted to retire costly time deposits in an effort to reduce funding costs.

In 2015, NPLs including suspended interest resumed growth, mainly because of new classified loans in the corporate sector, reflecting the challenging economic environment together with elevated credit risk in the economy. The bank’s NPL to gross loans ratio, however, fell to a level broadly in line with the sector average, flattered by steep growth in gross loans largely to state-controlled entities. The sharp loan expansion, however, was from a relatively low base and followed two years of almost flat growth. During the first half of 2016 the bank’s NPLs decreased to some extent following significant loan write-offs and recoveries, resulting in a NPL ratio that was slightly below the sector average. Given the significant reduction in NPLs, the Bank’s already more than full LLR coverage improved further and was the highest in the sector in H1 2016.

HBTF’s above average operating profitability – underpinned by a solid NIM and ongoing good cost control – has allowed the bank to absorb substantial risk charges during the last five years. While the bank’s operating profitability continued to contract during 2015, it rebounded during H1 2016, due to improved NIM and much higher non-interest income generation. The ROAA also remained good and one of the best among peer banks. HBTF’s consistently sound net profitability has preserved the bank’s capital adequacy at a solid level through retained earnings, despite the consistently high dividend payout ratio in recent years. The CAR has a high Tier 1 element, although regulatory capital is negatively affected by mounting Forex translation losses, mainly arising from the Syrian subsidiary.

HBTF was established in 1974 as a Specialised Credit Institution with a social mandate to relieve the acute housing shortage in Jordan by offering long-term credit facilities to meet the country’s residential and business needs. Since the bank’s specialised role as a lender to the construction and housing sectors effectively ceased nearly two decades ago, HBTF has successfully diversified its credit activity into other key sectors of Jordan’s economy including trade, retail, and manufacturing. With a universal banking business model in place and 129 branches in Jordan, the bank maintains operations in London, Bahrain, Algeria, Palestine, and Syria. HBTF’s prominent shareholders include Qatar National Bank (34.5 per cent), Kuwait Real Estate Investment Consortium (18.6 per cent), Libyan Foreign Bank (16.1 per cent), and Jordan’s Social Security Corporation (15.4 per cent). Total assets were JOD 7.67 billion ($10.8 billion) at end-June 2016, while total capital amounted to JOD 1,006 million ($1.42 billion).

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