Monday 04, September 2017 by Nabilah Annuar

CI reinstates International Bank of Yemen’s ratings

Capital Intelligence Ratings (CI) has reinstated the credit ratings of the International Bank of Yemen (IBY), based in Sana’a, Yemen.

CI suspended the ratings of IBY in July due to the absence of year end 2016 audited figures. IBY’s Financial Strength Rating (FSR) is reinstated at ‘B-’, supported by adequate liquidity, capital, and profitability. The FSR is constrained by the extremely weak and volatile operating environment, very weak loan asset quality, and the Bank’s high exposure to a lowly rated sovereign. Similarly, the Long- and Short-Term Foreign Currency Ratings (FCRs) are both reinstated at ‘C’.

IBY has confirmed to CI that it is not currently in default of any obligations. All ratings remain on a ‘Negative’ Outlook. The Support Rating is reduced to ‘5’ from ‘4’, due to the low likelihood of support from shareholders and the authorities and uncertainty as to their ability to provide timely assistance, particularly given the current operating environment.

IBY has one of the largest market shares of the Yemeni banking system. The Bank’s 2016 results indicate a still fairly resilient performance with financials underpinned by the continued earnings from Yemeni government treasury bills and a higher customer deposit base. Nonetheless, the ongoing civil war and volatile operating environment pose a major challenge and threat to IBY’s financial performance and credit strength and the risk of further adverse events occurring suddenly remains high. The Bank has concentrated risk to the sovereign, particularly as a multiple of capital, which is understandable as it represents the lowest risk in the country.

In September 2016 President Hadi issued a decree to replace the then governor and relocate the headquarters of the Central Bank of Yemen from Sana’a to Aden. The loss of a functioning central bank brings with it many questions, particularly the ability to manage basic economic stabilisation and the running of the banking system.

The Yemen government has continued to pay and honour its interest and debt obligations on its treasury bills. IBY’s balance sheet is dominated by very short-term, local currency government debt, representing around two-thirds of the balance sheet. In turn, IBY’s gross and operating returns have remained high and quite stable, including in 2016. However, net profit was much lower due to a significant increase in the provision charge in 2016. IBY saw a high rise in NPLs in 2016 and NPLs now represent near all of gross loans. However, against total assets, the position is more reasonable. That said, provisioning is somewhat low, particularly against free capital.

IBY has been able to raise its customer deposit base in each of the last two years, a notable achievement given the circumstances. Overall liquidity is adequate, with funding driven by its customer deposit base and an insignificant loan portfolio. Obviously, given the heavy exposure to short-term Yemeni government debt, liquidity is dependent upon the continued stability in this investment, which could change suddenly. The Bank’s headline capital position is adequate but the ratio is very much supported by the zero risk-weighting attached to Yemeni government treasury bills.

IBY was established in January 1979 by a Presidential decree and its shareholder base is dispersed quite widely. At end 2016 total assets amounted to YER 523 billion ($2.1 billion).

 

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