Sharjah Islamic Bank (SIB) was downgraded to Baa2 from Baa1 by Moody’s. Moody’s notes that SIB’s asset quality deterioration and declining loss-absorption capacity are weighing on the bank. As per the rating agency, SIB’s “problem financings-to-gross financings ratio increased to 5.6%” in the six-months ended June 2022 vs. 4.8% in December 2021. Its non-performing financing also increased by 16% during this period. Besides, the bank’s problem financing provisioning coverage has fallen to 84% of problem financings as of June 2022 from 91% as of December 2021. SIB has high lending concentration on the construction and real estate sectors which will continue to pose downside risks. The bank’s asset quality is expected to remain under pressure. SIB is said to have modest profitability and high earnings volatility. Also its core capital buffers are modest, Moody’s notes, with tangible common equity (TCE) to risk-weighted assets ratio is now at 14.8% vs. 20.4% in 2016. However its regulatory capital is expected to stay sound. On the positive side, Moody’s notes that SIB’s liquidity buffers are sound and mitigate its reliance on external capital market funding.

SIB’s USD 5% Perp was trading stable at 98.25, yielding 5.69%.

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