NBB gets Fitch ratings boost
Manama, April 9, 2013
Fitch Ratings has affirmed National Bank of Bahrain's (NBB) long-term issuer default rating (IDR) at 'BBB' and viability rating (VR) at 'bbb'. The outlook on the long-term IDR is stable.
The ratings agency said NBB's VR and IDRs reflect its leading domestic franchise, consistent profitability, generally healthy asset quality, sound liquidity and very strong capitalisation.
It also considered the bank's high reliance on a relatively small and competitive domestic environment, and concentrations in loans and deposits.
NBB's operating profit increased by 4.2 per cent in 2012, driven by strong revenue growth and expense management.
The net interest margin was little changed at 2.8 per cent in 2012, mainly driven by higher interest income on NBB's securities portfolio, Fitch said.
Cost efficiency improved with the cost/income ratio falling to 31.5 per cent.
Loan impairment charges trebled to BD9.2 million, but still only represented 15.5 per cent of pre-impairment operating profit.
Fitch expects profitability to further improve in 2013, driven by selective loan growth supported by its investment securities portfolio.
Impaired loans increased to 7.6 per cent of total gross loans at end-2012 (end-2011: 1.8 per cent), largely as a result of the impairment of one large real estate-related exposure.
Fitch does not expect NBB to suffer significant losses, if any, as this exposure is well-collateralised.
Asset quality otherwise remained healthy, benefiting from significant exposures to the government and large domestic corporates.
Despite the increased loan impairment charge, loan loss reserve coverage declined to around 40 per cent (end-2011: 104 per cent).
Funding is mainly from customer deposits (almost 90 per cent of non-equity funding), reflecting NBB's strong domestic franchise.
Customer deposits have been increasing in recent years (2012: up 9 per cent), following successful initiatives to attract deposits. NBB is a net placer of funds into the interbank market.
Liquidity is sound. Loans/assets (end-2012: 33.5 per cent) and loans/customer deposits ratios (44.1 per cent) are low by regional standards.
NBB has substantial liquid assets on its balance sheet, consisting of cash, interbank placements, treasury bills and other investments, which together represent around 65 per cent of total assets.
At end-2012, the bank's regulatory tier 1 and Fitch core capital ratios further strengthened to 25.8 per cent and 30.2 per cent respectively, boosted by retained earnings and slightly lower risk-weighted assets, the agency said.
NBB's support rating and support rating floor reflect Fitch's view that there is a high probability that the bank would receive support from the Bahraini state, if required.
This view is based on the Bahraini authorities' track record of support for domestic banks, the bank's leading franchise in Bahrain and its majority government ownership.-TradeArabia News Service