Factors constraining the FSR are customer deposit concentrations, rather high real estate credit exposure, and the increased level of credit risk in the broader region exacerbated by the fall in oil prices. CI also affirms the bank’s Long and Short-Term Foreign Currency (FC) Ratings at ‘A-’ and ‘A2’, respectively. These ratings are set above Bahrain’s Sovereign Long and Short-Term FC Ratings of ‘BBB-’ and ‘A3’ respectively, on the basis of AUB’s limited asset exposure to Bahrain (16 per cent of total assets), its diversified balance sheet and revenue streams derived from large operations in Kuwait (Ahli United Bank Kuwait [AUBK], Long-Term FC Rating ‘A+’ and Short-Term FC Rating ‘A2’), the other GCC countries and the UK. The ‘Stable’ Outlook for all ratings is maintained. The Support Level remains at ‘3’, denoting the high likelihood of support from the core shareholders and official sources. In the case of the largest subsidiary AUBK, there remains in force an explicit government guarantee of customer deposits placed in Kuwait and held with Kuwaiti banks.

AUB’s management is capable and follows a clear and well executed business strategy. This has earned the bank successful and significant business franchises in three of the six oil-rich GCC markets. The subsidiary operations in Kuwait (through AUBK) and in the UK (AUBUK) significantly diversify the bank’s risk assets and revenue streams away from Bahrain, where in any case exposure is very limited. However, the bank’s asset base, sources of funding and revenue streams remain predominantly GCC based, reflecting the bank’s chosen business model and strategy.

The operating environment within the GCC region remains rather challenging. The sharp fall in oil prices since mid-2014 has elevated credit risk in the region, with liquidity conditions expected to tighten. AUB’s effective risk management practices are an important mitigating factor in this regard. Loan asset quality remains very sound with the non-performing loan ratio remaining at a low level and loan loss reserves providing more than full cover. The bank’s sources of funding are diversified, supported by a deep and expanding base of customer deposits and demonstrated access to term finance. While there remains some concentration within the deposit base, these funds belong to government and quasi-government entities and are viewed as being stable. Despite the small decline in the liquid asset ratio in 2014, AUB’s liquidity position has improved over the last three years, with the bulk of liquidity resting on a growing pool of customer deposit funding. Significantly, the share of CASA balances has grown and this has lowered the cost of funds in recent periods.

AUB’s balance sheet remains well capitalised with a high Tier 1 component. The bank successfully completed a $400mn Basel III compliant AT1 Perpetual Capital Securities issue in the first six months of 2015. A moderate dividend policy, in combination with growing net profit, has aided internal capital generation over the years. Despite the sale of Ahli Bank Qatar (ABQ) in 2013, AUB continues to enjoy good levels of recurring gross income, reflecting multiple sources of revenue derived from a reasonably diversified geographical asset base. Operating profitability grew further on the back of sustained expansion in net interest income and higher non-interest income. Although the bank’s net profit fell in 2014, this was off a high base as earnings in 2013 had been boosted by a substantial extraordinary gain from sale of ABQ. Excluding the extraordinary gain from sale of ABQ in 2013, both net profit and RoAA increased in 2014 as compared to 2013. Notwithstanding the just marginal increase in operating profit in H1 2015 compared with H1 2014 (due to a foreign currency translation effect), net profit and ROAA (annualised) recorded a healthy increase on the back of a lower provision charge.

AUB, incorporated in Bahrain on 31 May 2000, is the name adopted for the entity formed by the merger of the erstwhile ‘Al-Ahli Commercial Bank BSC’ and ‘United Bank of Kuwait’, a bank incorporated in the UK. The bank’s universal banking business model is focused on the GCC market, and seeks to ensure that conventional − as well as Shari’a compliant − products are provided in all countries. Business operations are organised into three principal divisions: (i) retail banking, (ii) corporate banking, and (iii) treasury, investments, private banking and wealth management. Prominent major shareholders of AUB (5 per cent) include the Public Institution for Social Security, Kuwait (19.3 per cent), the Social Insurance Organisation, Bahrain (10.2 per cent) and Tamdeen Investment Company (7.9 per cent). As at end-June 2015, total assets amounted to $32.7 billion and total capital was $3.7 billion.