Global Arab Network - Capital Intelligence (CI) has announced that it has affirmed Gulf International Bank (GIB)’s Long and Short-term Foreign Currency Ratings at ‘A’ and ‘A1’ respectively.

GIB’s ownership remains a key positive rating driver testifying to an exceptionally strong and supportive shareholder through the Saudi government-owned Public Investment Fund. This support is very likely assured over the foreseeable future and accordingly the Support level of 1 is affirmed. The Bank’s ratings are also predicated on the fact that a majority of its risk assets are domiciled in higher rated sovereigns outside Bahrain’s jurisdiction (namely Saudi Arabia, Qatar, UAE and Western Europe). Notwithstanding the higher non-performing loan (NPL) ratio and lower loan-loss reserve coverage, as well as the ongoing challenging operating environment, GIB’s Financial Strength Rating is maintained at ‘BBB+’ reflecting its very solid capital adequacy, improved liquidity, diversifying sources of funds, and rebound in profitability. The Outlook for all the ratings is ‘Stable’.

GIB continued to deleverage its balance sheet in the year under review - loans and, as a result, deposits both contracted for a third successive year – evidencing the emphasis being given to ‘de-risking’ the balance sheet and strengthening liquidity and funding following the financial setback a few years earlier. In response to changes in the operating environment for wholesale banks, GIB appointed an international consulting group to assist the board and management in developing a new business model and strategy. The new business strategy entails transforming GIB into a pan-GCC universal bank, based on four main pillars of corporate and investment banking, asset management and retail banking. GIB, in common with many other GCC banks, experienced problems in 2009 in relation to two distressed Saudi conglomerates. In the year under review, the Bank’s NPLs grew further reflecting the restructuring of a number of regional syndicated loan facilities - although in H1 2011 NPLs decreased.

GIB’s balance sheet remained solidly capitalised providing a strong buffer against possible adverse eventualities. Measures of loan-based liquidity continued to improve due to the twin effects of a cautious lending policy and deleveraging. As a result of the latter and actions taken to lengthen the maturity profile of liabilities and reduce the mismatch between the maturities of assets and liabilities, funding risks have reduced. Sources of funding are reasonably diversified and depositor concentrations are improving. In spite of lower gross income and operating profit in 2010, the Bank’s net profitability returned to positive territory assisted by a sharp fall in provisioning. Operating profit measured to average total assets was relatively stable.

Established in 1975 by international treaty, GIB remains engaged in wholesale banking within the region, including investment banking and asset management. The wholesale commercial and investment banking activities focus on trade and financial flows between the Gulf and the industrialised world. The Bank operates a wholly-owned investment banking subsidiary in the UK, GIBUK, which was restructured during 2009. GIB had total assets of USD15.5 billion and total capital of USD2.4 billion at end 2010.