S&P downgrades local operations of Jordan’s Arab Bank

17 March 2010

Rating action follows downgrade of Jordan’s sovereign credit rating

International ratings agency Standard & Poor’s (S&P) lowered Arab Bank’s credit rating to BBB- from BBB on 15 March as a result of the sovereign downgrade of Jordan to BBB-.

“The ratings on Arab Bank reflect its incorporation and operations in Jordan where the bank is subject to sovereign risk,” says S&P.

“Consequently, the ratings on Arab Bank are constrained by our local currency rating on Jordan.”

However, the ratings agency reafffirmed its A- ratings on Arab Bank’s operating companies outside of Jordan, including Bahrain, Qatar and Singapore, and Europe Arab Bank and Arab BAnk Australia.

S&P downgraded Jordan’s local currency sovereign credit rating to BBB- from BBB on 12 March on weaker fiscal flexibility and the associated rise in government debt.

The general government deficit increased to an estimated 7.8 per cent of GDP in 2009, from a broadly balanced position during the previous five years.

“The kingdom’s net borrowing requirements have structurally increased as a result of lower grant revenues and increasing – mostly inflexible – expenditures,” added S&P.   

The agency also downgraded the credit and insurer financial strength ratings on Jordan-based Middle East Insurance Company (Meico) to BBB- from BBB on 15 March, again following on from Jordan’s sovereign credit downgrade. 

S&P expects Jordan’s economic growth to average just under 5 per cent per year in 2010-13. This is an improvement on the 3 per cent recorded in 2009, but still significantly lower than the average of more than 8 per cent achieved annually between 2004-2008, which was underpinned by strong inflows of foreign direct investment and remittances from other Arab countries.

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