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Finance & Banking | Global Arab Network
Bahrain: Moody's places three retail banks on review for possible downgrade
Global Arab Network - - Ahmed Rashid
Moody's Investors Service has placed on review for possible downgrade the deposit ratings and standalone bank financial strength ratings (BFSRs) of three Bahraini retail banks, Global Arab Network reports according to a press statement:

- National Bank of Bahrain B.S.C. (NBB): A3 long-term local and foreign-currency deposit ratings and C- BFSR.

- BMI Bank B.S.C. (BMI): Baa3/Prime-3 local and foreign-currency deposit ratings and D BFSR.

- BBK B.S.C. (BBK): A3 long-term local and foreign-currency deposit ratings and C- BFSR.

Additionally, Moody's has also placed the following ratings of BBK-issued debt on review for possible downgrade:

- The (P)A3 senior and (P)Baa1 subordinated ratings of BBK's USD2,000 million euro-denominated medium-term note programme.

- The A3 rating of BBK's USD500 million 4.5% euro-denominated medium-term notes, due 2015.

- The Baa1 rating of BBK's USD275 million floating-rate subordinated euro-denominated medium-term notes, due 2017.

- The (P)A3 rating of BBK's USD1,000 million euro-denominated deposit-note programme.

- The A3 rating on BBK's USD500 million euro-denominated deposit notes, due 2011


Moody's decision to place the ratings of NBB, BBK and BMI on review for possible downgrade follows a similar action taken by the rating agency on 23 February, when it placed the sovereign rating of the Bahraini government on review for possible downgrade. Given that all three banks' deposit ratings benefit from rating uplift due to Moody's assumptions of systemic support, a possible downgrade of the Bahraini government rating would likely reduce the level of systemic uplift for the banks' ratings. This is because the government rating is a key consideration in Moody's assessment of a country's capacity to support its banking system, in case of need.

"Today's rating actions are also driven by the possibility of increased medium-term levels of economic stress in Bahrain, following the outbreak of serious anti-government protests in the country and the potential credit-negative impact that this could have on the banks' standalone financial strength," explains George Chrysaphinis, a Moody's Vice President and lead analyst for the three Bahraini banks. "Moody's is concerned about the impact of possible economic disruptions on asset quality, particularly as these could negatively affect the banks' large real-estate exposures. The review also acknowledges the likelihood of increased liquidity pressures in the event of a significant escalation in the nature of the current political protests," adds Mr Chrysaphinis.

Moody's review process is expected to be concluded within three months, in line with the review period for the conclusion of the sovereign rating review. During this period, Moody's will assess the extent of possible deterioration in economic conditions within Bahrain, together with the resilience of the banks' franchise and financial performance. Moody's will also re-assess the capacity of the Bahraini authorities to provide systemic support to the banking sector, which could lead to a downward adjustment in the systemic support indicator (SSI) for the country, currently at A2 (one notch above the government rating). Any such adjustment could have an additional impact on the banks' deposit ratings.

Separately, on 31 January 2011, a fourth Bahraini retail bank rated by Moody's, Bahrain Islamic Bank (BIsB), was placed on review for possible downgrade. BIsB's issuer rating and BFSR were downgraded to Baa2/Prime-3/D, from Baa1/Prime-2/D+, respectively, and kept on review for possible downgrade. Those rating actions were taken due to bank-specific factors. The review process on BIsB will focus on these factors, but also on the systemic issues affecting the other Bahraini retail banks.

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