Fitch downgrades Arab Banking Corporation

Fitch Ratings has downgraded Bahrain-based Arab Banking Corporation's (ABC) after Libya acquired the bank’s stake from Abu Dhabi.

It reduced ABC’s Long-term foreign currency Issuer Default Rating (IDR) to 'BBB' from 'BBB+' and Short-term foreign currency IDR to 'F3' from 'F2'.

The Outlook on the Long-term foreign currency IDR is Stable.

The senior unsecured debt is downgraded to 'BBB' from 'BBB+' and subordinated debt to 'BBB-' from 'BBB'. The Support Rating is affirmed at '2' and the Support Rating floor of 'BBB+' has been withdrawn in line with Fitch's treatment of institutional support. The Individual Rating is unaffected.

The rating action follows an announcement by ABC that the Central Bank of Libya (Libya is rated 'BBB+'/Stable Outlook) has increased its stake in ABC to 59.4 per cent from 41.7 per cent as a result of acquiring the entire stake held by the Abu Dhabi Investment Authority (Abu Dhabi is rated 'AA'/Stable Outlook).

Earlier in the year, the Central Bank of Libya increased its stake in ABC to 41.7 per cent, from 29.5 per cent, when it took up the Abu Dhabi Investment Authority's rights in ABC's $1.1bn capital issue in March 2010. The Kuwait Investment Authority's (Kuwait is rated 'AA'/Stable Outlook) stake remains unchanged at 29.7 per cent.

ABC's IDRs and Support Rating reflect Fitch's view that there would be a high probability of support from its main shareholders if needed, given their commitment to recent rights issues and by confirmation to Fitch of continued support.

Established in 1980, ABC is a wholesale bank operating internationally, active in trade, project and structured finance, Islamic finance and treasury. It has a major Brazilian subsidiary and small retail and SME/corporate operations in Algeria, Egypt, Jordan and Tunisia.

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