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Fitch Affirms Union de Banques Arabes et Francaises at 'BBB+'; Outlook Stable

Nov 18 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Union de Banques Arabes et Francaise's (UBAF) Long-term Issuer Default Ratings (IDR) at 'BBB+' with a Stable Outlook and Viability Rating (VR) at 'bbb-'. A full list of rating actions is at the end of this rating action commentary.


UBAF's IDRs and Support Rating are driven by potential support from Credit Agricole Corporate and Investment Bank (CACIB, A/Stable; 47% shareholder), part of Credit Agricole (CA; A/Stable). Fitch believes that timely financial support would be provided by CACIB, or ultimately by CA, if required, as CACIB is UBAF's designated reference shareholder.

Fitch's assessment of support also factors in CA's history of support and UBAF's high integration with CACIB in terms of management, risk control and systems. UBAF is of limited size relative to CACIB (below 1% of total assets at end-1H13), which makes financial support from CACIB easier to provide.

The two-notch difference between CACIB's and UBAF's Long-term IDRs reflects Fitch's opinion that UBAF is of limited importance to CACIB. However, UBAF complements CACIB's trade finance business. The Stable Outlook on UBAF's Long-term IDR mirrors that on CACIB and CA.


UBAF's IDRs and Support Rating are sensitive to any change in the bank's strategic importance to, or integration with CACIB, which is not Fitch's expectation. Any action on CACIB's Long-Term IDR would also trigger an action on UBAF's Long-Term IDR.


UBAF's VR is underpinned by the benefits in terms of risk management and governance stemming from its strong integration with CACIB, and business access to the MENA region facilitated by the bank's ownership structure, which includes a large number of MENA shareholders. UBAF's VR reflects UBAF's resilient profitability and asset quality despite the heightened political and economic risks in the MENA region, prudent liquidity management, and adequate capitalisation, but also its modest size, country and counterparty concentrations, and operations in potentially volatile countries.

UBAF's business is supported by its MENA shareholders. However, the reduction of trade finance business due to difficult operating environments in UBAF's important countries of operation (such as Libya, Syria or Egypt) put pressure on profitability in 1H13. UBAF expects substantial, albeit manageable loan impairment charges to affect profitability in 2H13 and 2014.

UBAF's asset quality endured well in 1H13 despite the political destabilisation and economic deterioration in certain of its main MENA countries. The high non-performing loans (NPLs) ratio reported by the bank (10.4% at end-1H13) relates to two 98%-reserved very old exposures. Excluding these, the NPLs ratio was only 1% at end-1H13.

UBAF's liquidity is adequate. It is supported by comfortable bank placements (EUR602m at end-1H13, largely with CACIB). Its flexible balance sheet structure, which is driven by self-liquidating short-term transactions, reduces refinancing risk. Fitch views UBAF's capitalisation (Fitch core capital ratio of 19.9% at end-1H13) as only adequate given concentrations on the asset side, material exposure to volatile markets, and aggressive dividend-pay-out ratio.


The VR could be downgraded if UBAF's operational and/or credit risk materially deteriorates, or liquidity tightens. Upside potential for UBAF's VR is limited given its niche focus.

The rating actions are as follows:

Long-term IDR affirmed at 'BBB+'; Outlook Stable

Short-term IDR affirmed at 'F2'

Support Rating affirmed at '2'

Viability Rating affirmed at 'bbb-'