Fitch Ratings has affirmed Bahrain-based BMB Investment Bank's Long-term Issuer Default Rating (IDR) at 'B-' and revised the outlook to positive from stable. It also confirmed the Viability Rating (VR) at 'b-'.

The revision of the outlook to positive reflects the bank's success in de-leveraging its balance sheet, paying down legacy financial obligations and funding commitments as and when due and reducing reliance on investments in private equity funds to drive profitability.

Fitch noted the increasing contribution to operating revenues from more stable fees and commissions in 2011 and the first half of 2012, following BMB's change of strategy to develop new business lines, including trade finance, capital markets trading activities and asset management.

BMB's IDRs are driven by its VR, and the Long-term IDR is sensitive to any rating action on the VR. The support rating is based on Fitch's view that BMB would be highly unlikely to receive solvency support from the government, if needed, given its wholesale bank status.

BMB's VR reflects its small but growing wholesale banking franchise, relatively high exposure to market risk, concentrated wholesale funding profile and small equity base.

Fitch considered the bank's achievements in reducing its exposure to private-equity commitments, improving operating performance since the change in management in 2009 and success in implementation of its new corporate strategy which includes diversifying earnings into more stable, recurring revenue streams.

Upside potential for the VR could arise from diversification of the bank's major wholesale funding sources current limited.

Continued progress in growing the franchise could be a positive rating driver. Downside risk to the VR is limited considering its low level.

Fitch recognised BMB's success in materially cutting operating costs in recent years, but notes that the cost-income ratio remains relatively high and will continue to be so until the bank sufficiently grows its revenues.

At end of the first half, investments in proprietary private equity funds still represented about one-third of total assets, with a large portion of the portfolio expected to be realised within 24 months.

Following the rescheduling of its obligations in 2010-2011, BMB fully repaid the final instalment of a significant legacy quasi-government term deposit during the first half, and a legacy term finance facility is expected to be fully repaid in March 2013.

The switch in BMB's business model to shorter-term trade finance activities, with a portfolio of liquid assets, has improved the liquidity profile, with 46 per cent of total assets maturing in one year or less with 32 per cent in three months or less.-TradeArabia News Service