Global Arab Network | Bahrain: Moody's places Gulf International Bank on downgrade review

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Bahrain: Moody's places Gulf International Bank on downgrade review

Global Arab Network - - Rabih Serrai

Friday, 25 February 2011 01:11

Moody's Investors Service has today placed the A3 long-term foreign currency deposit ratings and D+ bank financial strength rating (BFSR) of Gulf International Bank B.S.C. ("GIB") on review for possible downgrade, Global Arab Network reports according to a press statement.

Moody's decision to place the bank's ratings on review for possible downgrade is driven by the ongoing weakness in the bank's financial performance, and in particular its low profitability. According to Moody's, the bank's weak earnings capacity provides only modest loan loss absorption capacity, as measured by the ratio of pre-provision profits to gross loans. In view of the increased level of geopolitical risk within the Middle East and the relatively high concentrations in the bank's wholesale lending portfolio, Moody's considers this to be a limiting factor for GIB's rating.

During the review period, which is expected to last about three months, Moody's will examine in greater depth the possible vulnerability of GIB's loan portfolio to increased political tensions within the Middle East. The rating agency will also examine GIB's plans to improve revenue generation over the medium term through franchise diversification.

Moody's notes that the bank's A3/Prime-2 foreign currency deposit ratings incorporate four notches of parental support uplift, based on 97% ownership by Saudi Arabia's Public Investment Fund. A downgrade of the bank's BFSR could lead to a downgrade of its deposit ratings, despite Moody's assumption of strong support from the parent.

Moody's has today also placed on review for possible downgrade the following debt ratings:

- The (P)A3 senior and (P)Baa1 subordinate ratings of GIB's US$4,000 million Euro MTN programme

- The Baa1 rating on GIB's US$400 million Floating Rate Euronotes, due 2015

- The A3 rating on GIB's SAR3,500 million Floating Rate Euronotes, due 2015, issued by the bank's Saudi branch

- The A3 rating on GIB's SAR2,000 million Floating Rate Bonds, due 2015, issued by the bank's Saudi branch

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