Global credit rating agency Moody’s has upgraded Masraf Al Rayan’s long term issuer ratings to A1 from A2 and Counterparty Risk (CR) Assessment to ‘Aa3(cr)’ from ‘A1(cr)’.
At the same time, the baseline credit assessment (BCA) and adjusted BCA were raised to ‘baa2’ from ‘baa3’.
Concurrently, the rating agency affirmed the ‘Prime-1’ short term issuer ratings and ‘Prime-1(cr)’ short term CR Assessment.
The outlook on the long-term ratings has changed to stable from positive.
The upgrade of Masraf Al Rayan’s ratings reflects continued business diversification as a result of growth and profitability of the UK subsidiary; consistently strong asset quality performance and strong profitability and capital metrics, Moody’s said.
These strengths however remain moderated by the bank’s dependence on key management relationships to generate new business, high degree of concentration on both the asset and liability side of the balance sheet and the impact of tightening regional liquidity on Its funding profile.
Moody’s said the key driver of the upgrade is the bank’s increasing geographical diversification following the growth and first time profitability of its subsidiary Al Rayan Bank UK (originally Islamic Bank of Britain).
“Going forward, we expect these diversification trends to continue as the bank’s UK subsidiary grows further and helps offset the slowdown in asset growth expected in its domestic market,” it said, adding the UK business has increased the contribution of retail operations towards Masraf Al Rayan’s operating income to 22% for the first six months of 2016 from 5% for the year 2011.
Finding that Masraf Al Rayan’s current non-performing financings (NPFs analogous to non-performing loans) are around 0.10% of total financing assets; Moody’s said “going forward, we do not expect MAR’s NPF ratio to increase significantly from its current levels.”
Moody’s also expects that Masraf Al Rayan’s will maintain strong capital ratios, as healthy internal capital generation supports the needs of future - although decelerating - asset growth.
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