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WEAKENING OF SOVEREIGN SUPPORT

Top Bahraini banks face possible downgrade

Limassol, June 27, 2013

Moody's Investors Service said it has placed four Bahraini banks - National Bank of Bahrain (NBB), BBK, BMI Bank and Bahrain Islamic Bank (BIsB) - on review for possible downgrade of its deposit, issuer and senior debt ratings.

As part of the same rating action, Moody's has also placed on review for downgrade the standalone bank financial strength rating (BFSR) of BIsB, said the ratings agency in its statement.

Moody's decision comes following the potential weakening in the sovereign's capacity to provide support to the banks, as signaled by the agency's decision to place the Baa1 Bahraini government bond rating on review for possible downgrade.

The sovereign review was prompted by the fiscal implications of Bahrain's high and rising break-even oil price; the outlook for lower trend economic growth in the country over the medium term and the impact of a low-growth, high government expenditure and weaker oil price scenario on Bahrain's long-term debt sustainability.

"Moody's decision today to place the standalone bank financial strength rating of BIsB on review reflects the extensive recapitalization needs of the bank coupled with a potential weakening in the support capacity of its key Bahraini sovereign-related shareholders, which could affect the timing, amount and nature of the recapitalization," said the ratings agency in its report.

Moody's said the review for downgrade of the banks' deposit, issuer and senior debt ratings is aligned with the review for downgrade of Bahrain's ratings and will focus on the risk of a reduction in the government's capacity to support the banks.

A lowering of the government debt rating would indicate Moody's assessment of a weaker capacity of the government to provide support and would prompt the rating agency to reassess the systemic support uplift currently embedded in the four banks' deposit, issuer and senior debt ratings, it stated.

According to Moody's, the review for downgrade of BIsB's standalone bank financial strength rating is driven by its extensive recapitalisation needs under Moody's central scenario, which takes into account the bank's very weak non-performing financing and loss coverage levels, at 27 per cent and 25 per cent respectively for YE2012.

Given the review for downgrade on the deposit, issuer and debt ratings of the four banks, there is currently no upward rating pressure, said the ratings agency.

A downgrade of the government debt rating would prompt Moody's to reassess the rating uplift currently embedded in the ratings of the four banks. Further negative rating pressure may result if there is a material erosion in the banks' franchises or financial fundamentals.

Moody's pointed out that BIsB's standalone credit profile could be stabilized if the capital injection was sufficient to address estimated capital shortfall projections.
 
"Uncertainty regarding the timing of a capital injection and/or an insufficient capital injection and/or weakening in the bank's funding and liquidity could exert downwards pressure on the ratings," it added.-TradeArabia News Service




Tags: Bahrain | banks | NBB | bond | BiSB | downgrade |

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