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Outlook stable - Bahrain based Gulf International Bank

Global Arab Network - - George Haddad

Monday, 27 July 2009 15:17

Bahrain-based_Gulf_International_Bank_GIB

Fitch Ratings has today affirmed Bahrain-based Gulf International Bank's (GIB) Long-term Issuer Default Rating (IDR) at 'A' with Stable Outlook, Short-term IDR at 'F1', Individual Rating at 'C/D', Support Rating at '1' and Support Rating Floor at 'A'. GIB's dated subordinated debt obligations are affirmed at 'A-'.

GIB's IDRs and Support Rating reflect Fitch's view that there is an extremely high probability that the bank would be supported by its shareholders, as shown by its Q109 USD4.8bn asset sale and its Q108 USD1bn capital injection. The Kingdom of Saudi Arabia (rated 'AA-'/Stable) increased its stake to a combined 97.22% from 55% in Q109, held through the Public Investment Fund of the Kingdom of Saudi Arabia and the Saudi Arabia Monetary Agency. The balance is held by the governments of Bahrain (0.44%), Kuwait (0.73%), Oman (0.44%), Qatar (0.73%) and the UAE (0.44%).

The Individual Rating reflects the sale of most of GIB's investment securities in Q109 and the positive impact this has had on its risk profile, capitalisation and liquidity. It also reflects Fitch's concerns about its reliance on wholesale funding, modest profitability and weakened prospects in the more challenging operating environment.

On 27 March 2009, GIB sold USD4.8bn of investment securities to certain of its shareholders. Following this, it has no net exposure to CDOs or ABS; GIB also sold all its non-GCC financial institutions' subordinated debt and certain financial institutions' senior debt investments. Remaining investments (end-Q109: USD2.1bn) consist mainly of highly rated bank senior debt and government debt. With the removal of significant uncertainty over potential further losses from investments, Fitch considers GIB's market risk profile to be moderate. In 2007 and 2008, GIB suffered large cumulative impairment charges (USD1.3bn, mainly for SIVs and CDOs), fair-value losses on investments, and trading losses mainly from its UK subsidiary; proprietary trading has now ceased.

The USD4.8bn sale was the main driver for a major decline in risk-weighted assets to USD16bn at end-Q109 from USD25bn at end-2007, which strengthened capitalisation to adequate levels. GIB's USD4.8bn sale was for cash, improving liquidity to adequate levels. The bank aims to further de-leverage by reducing its loan book after rapid growth in H108. Impaired loans remain low at 0.1% of end-Q109 gross loans, although Fitch expects these to rise in 2009.

Prospects for its main business of GCC project and corporate finance have been weakened by the global recession. Modest underlying profitability was reflected in operating profits (before impairment charges and trading losses) of USD283m in 2008. GIB suffers from a reliance on wholesale funding, much of which is short-term, but it also has substantial long-term funding. It should be able to meet its next major maturity of USD850m in 2010 through internal resources.

Established in 1975, Bahrain-based GIB provides wholesale banking services to Gulf corporate and institutional clients. It has branches in the UK, US and Saudi Arabia.

In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual Ratings and the prospect of external support is reflected in Fitch's Support Ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.

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