Moody's trims Arab Bank rating

Moody's Investors Service downgraded the long-term debt rating of Arab Bank Australia Limited to Baa3 from Baa2. Moody's also cut the bank's short-term rating to Prime-3, from Prime-2. Moody's has also assigned a negative outlook to all ratings.

It is the second cut to the long-term rating of the bank in 13 months. In May 2011, Moody's cut the bank's rating by one notch.

Arab Bank once boasted - before the financial crisis - that it had incurred no loan losses on its Australian operation since opening for business in the 1990s. Its record since then has been more patchy.

Moody's yesterday said that "the downgrade reflects continuing asset quality pressures relating to the bank's single, large commercial loan exposures. It has also been driven by the rating downgrade of its parent, Arab Bank PLC, [last week]."

The ratings agency noted that at the end of March 2012 the ratio of the bank's impaired loans, plus those 90 days or more past due, was nine per cent, up from four per cent 15 months earlier.

Moody's also noted a funding risk concerning a A$172 million, Australian government guaranteed bond in need of refinancing in early 2013. This represents 15 per cent of all the bank's liabilities and one third of all its wholesale liabilities.

Since Banking Day reported on Moody's review of Arab Bank's credit rating, in March, the bank has released its 2011 annual report.

This shows that the parent bank tipped in $7.5 million in capital during the year.

Net profit fell 10 per cent to $5.1 million. And the bad debt charge increased eight per cent to $10.5 million.