Fitch Ratings has affirmed Bahrain-based Gulf International Bank’s long-term issuer default rating (IDR) at ‘A’ and short-term IDR at ‘F1’.
Fitch also affirmed individual rating at ‘C/D’ and support rating at ‘1’ with the outlook on the long-term IDR as stable.
The support rating floor was withdrawn in line with Fitch’s treatment of institutional support. GIB’s dated subordinated debt obligations and senior unsecured notes have been affirmed at ‘A-‘ and ‘A’, respectively.
The long- and short-term IDRs reflect Fitch’s belief that there is an extremely high probability that support would be forthcoming from its shareholders in case of need. GIB is 97%-owned by the Saudi Government through The Public Investment Fund of the Kingdom of Saudi Arabia (PIF).
The Individual Rating reflects GIB’s low profitability ratios, weakened asset quality, high concentration on both sides of the balance sheet, reliance on wholesale funding, good capitalisation and the challenge of implementing the bank’s new strategy.
GIB’s performance has shown signs of recovery but remains weak overall. After three consecutive years of net losses, the bank has returned into profit in 2010, mainly due to lower impairment charges.
Asset quality deteriorated in 2009. The non-performing loans (NPLs)/gross loans (GL) ratio increased to 7.4% at end-9M10 (2009: 3.7%) due to the migration of problem loans, classified in 2009 as impaired (but not past due greater than 90 days), to NPLs. Therefore, most problem loans were already recognised in 2009. NPLs are adequately reserved. Fitch expects NPLs to decrease in the short term due to restructuring.
GIB relies entirely on wholesale funding. The bank’s funding structure has improved in recent years as it has become less dependent on short-term funding. However, deposits (bank and non-bank) remain highly concentrated, with the top 20 depositors constituting 59% of the total at end-H110. Liquidity is adequate, with liquid assets covering around 63% of short-term funding.
Capitalisation has continued to strengthen. Deleveraging and de-risking the balance sheet increased the bank’s total capital ratio and Tier 1 ratio to 24% and 17%, respectively at end-9M10.
GIB aims to become a pan-GCC universal bank in the longer term. This means that it will be venturing into the retail segment and expanding its GCC presence. Fitch believes that it will be a challenging task on two fronts. Firstly, the bank has no previous experience in retail banking. Secondly, some GCC markets are highly competitive. GIB will initially establish branches in Saudi Arabia, before expanding to other GCC countries at a later stage.
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.