SAO PAULO & RIO DE JANEIRO, Brazil & NEW YORK--(BUSINESS WIRE)--Following the downgrade of Arab Banking Corporation's (ABC) Issuer Default Ratings (IDRs) to 'BBB-' from 'BBB', and the placement of these ratings on Negative Watch on Feb. 23 2011, Fitch Ratings highlights that this rating action should not affect the ratings of ABC's Brazilian subsidiary Banco ABC Brasil (ABCBr), whose ratings are as follows:
--Long-term foreign and local currency IDR 'BB+'; Outlook Stable;
--Short-term foreign and local currency IDR 'B';
--Individual rating 'C/D';
--Support rating '3';
--Long-term national rating 'AA-(bra)', Outlook Stable;
--Short-term national rating 'F1+(bra)'.
The foreign and local currency IDRs and national ratings are driven by the Individual rating of ABCBr. The Individual rating reflects the bank's good credit controls, strong asset quality, experienced management, all in the context of its strategy which is focused on the extension of credit and services to large- and medium-sized companies with strong credit profiles. The ratings also consider ABCBr's modest size and limited revenue diversification resulting from its relative concentration of funding sources. Recently released fourth-quarter 2010 earnings results show continued good performance, strong asset quality and a Basle index of 16% which is composed mainly of Tier I capital. Funding diversification remains adequate and comes primarily from domestic sources.
Fitch acknowledges that the rating action on ABC might affect ABCBr's funding costs in the short term, but as ABCBr's ratings are based primarily on its individual performance, and not on the support from ABC, no ratings actions for the Brazilian subsidiary should occur at this point in time. On the other hand, given the narrow difference of the ratings of ABC and ABCBr, and based on the Negative Watch assigned to ABC in conjunction with the rating actions taken, Fitch highlights that there is a strong probability of rating actions on ABCBr in case this Negative Watch translates into another rating action for ABC.
The Support rating reflects the moderate probability of support from of its major shareholding parent, ABC. The outcome of the Negative Watch assigned to ABC's IDRs might lead to rating actions on this Support rating, depending on the capacity and propensity of ABC to provide support towards ABCBr under the still uncertain conditions of its parent company, and its majority shareholder, the Government of Libya.
Fitch will continue to monitor the situation in Libya, and ABC and ABCBr closely.
ABCBr was established in 1989 and is currently 58% controlled by ABC through Marsau Uruguay Holdings. Of the remaining shares, 34% are traded in the market and the remainder is held by the bank's management and employees.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', dated Aug. 16, 2010.
--'Banco ABC Brasil S.A. Full Rating Report', dated Nov.12, 2010.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Banco ABC Brasil S.A.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=565125
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