Global Arab Network | Fitch Downgrades Bahrain-based TAIB Bank with Negative Outlook

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

Fitch Downgrades Bahrain-based TAIB Bank with Negative Outlook

Global Arab Network - - Rabih Serrai

Thursday, 08 April 2010 20:58

Fitch Ratings has today downgraded Bahrain-based TAIB Bank's (TAIB) Long-term Issuer Default Rating (IDR) to 'B+' from 'BB'. The Outlook is Negative. Fitch has simultaneously downgraded the Individual Rating to 'D' from 'C/D'. The Short-term IDR was affirmed at 'B' and the Support Rating at '5'.

The downgrades reflect significant problems in the form of two consecutive years of losses from shrinking revenues and high impairment charges, negative net interest income and margins, a contracting balance sheet and the resulting deterioration in the bank's franchise. The Negative Outlook reflects uncertain strategic direction and guidance from the main shareholder, the Dubai Financial Group, and the multiple challenges the bank faces to recover the capital and franchise lost over the last two years. Failure to reverse the recent loss-making trends and to exit from non-GCC operations and investments as planned could lead to a further downgrade to the IDR and also, possibly, to the Individual Rating.

The Support Rating reflects Fitch's belief that support from the bank's main shareholder, although possible, cannot be relied upon. The agency notes that there has been a lack of strategic direction from this shareholder since acquisition in 2007, although the bank believes this will be addressed by a new board elected in March 2010. The ability of the shareholder to provide support has also declined.

Profitability was disappointing in 2008 and 2009 as the bank responded to the global economic downturn by scaling back its activities and, as a result, reported consecutive annual losses (2009: USD26m; 2008: USD65m). As the bank's activities slowed down, especially in 2009, core revenues fell significantly with net interest income being negative and core fees and commissions fell to USD6m (from USD18.5m in 2008), which failed to cover staff costs. Impairment charges fell in 2009, but for both 2008 and 2009 they were significant relative to income. Future revenue and profit growth is likely to prove challenging, although the bank's decision to exit some of its non-GCC operations and investments should help.

Funding remains concentrated, although the deposit base grew strongly in 2009. The overall liquidity position is currently a positive for the bank as it sought to strengthen its position to weather the global economic crisis (interbank placements and cash and balances at the Central Bank represented 46% of the bank's total assets at end-2009). TAIB's capital adequacy ratio (all tier 1) was satisfactory at 17% at end-2009, although it has been eroded by the recent losses. The Fitch core and eligible capital ratio was higher at 25% as the bank is making some deductions relating to exposures individually in excess of 15% of available capital when calculating its regulatory ratios, which the agency is not.

Established in 1979, TAIB repositioned itself in 2004 as a Bahrain-based private bank providing wealth and asset management, real estate and private equity investment, and brokerage. Since 2007 TAIB has been majority-owned (60%) by Dubai Financial Group (part of Dubai Holding (DH), a company effectively owned by the ruler of Dubai).

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.

Global Arab Network

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network