Global credit crisis hits Bahrain-based bank
Published: 4th February 2008
MANAMA: Arab Banking Corporation (ABC) took a $230 million hit last year for its involvement in the US subprime market. The Bahrain-based bank saw its annual profit fall from $202m in 2006 to $125m last year. The bank is not recommending a dividend for shareholders.

The bank said the fall in profit was due to the net provision of $230m resulting from securities’ writedowns that the group was obliged to take in the wake of the global credit squeeze that followed the US subprime housing loan crisis in July. That has worsened in the fourth quarter, cushioned by credit writebacks and recoveries on impaired loans.

This is the second, and by far the largest writedown for a regional bank that got caught out in the subprime market but it may not be the last.

UAE-based Abu Dhabi Commercial Bank has already acknowledged exposure to the credit crunch, when it announced profits slip to $19m in the third quarter of last year. But there are suggestions that other regional financial institutions are also exposed to the subprime crisis.

Middle East Economic Digest has suggested that both Gulf International Bank (GIB) and Bank of Bahrain and Kuwait (BBK) could be facing a serious loss.

“Several major regional banks are expected to report losses for last year, as fears mount over their exposure to assets related to the US subprime mortgage market,” the London-based magazine said.

“Ratings agencies say they are already preparing to downgrade some banks.”

Fitch and Moody’s Investors Service name financial institutions including GIB, ABC and BBK as having some exposure to the assets, which have dramatically decreased in value over the past 12 months. Fitch also names Gulf Investment Corporation as being at risk.”

ABC chief executive and president Ghazi Abdul Jawad, is planning to stand down from his position because of health reasons.

He was not available for comment yesterday, but in a prepared statement accompanying the banks results, he said: “Whilst adverse market conditions over the second half of the year impacted our annual result, ABC’s core business activities continued to demonstrate strong growth, benefiting from the sustained increase in oil prices that is fuelling regional development and economic growth.”

ABC experienced an extremely good year as total income climbed to $691m from $484m.

Net interest income at $298m was $49mc or 19 per cent higher than the same period in 2006, mainly because of increased lending activities. Non-interest income reached $393m, up $158m, or 67pc, from 2006.

Consolidated total assets reached $32.7 billion at the end of last year, up $10.3bn, or 46pc, over 2006.

ABC’s securities’ portfolio grew to $13.6bn, an increase of $5.1bn or 59pc, and mainly comprised highly liquid investment grade securities.

Loans and advances increased to $12.3bn, up $3.7bn or 43pc as the lending portfolio continued to grow to meet customer demand.

The group continues to maintain a strong risk asset ratio, at 15.3pc from 17.0pc in 2006.

ABC’s funding efforts during last year were particularly successful, raising $500m under a subordinated loan facility in April, and a further $1bn under a syndicated five-year term loan facility in June, immediately prior to the emergence of the subprime crisis, both priced at rates reflecting an international credit rating of A.

© Gulf Daily News 

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