Fitch Ratings has affirmed BMB Investment Bank’s (BMB) long-term issuer default rating (IDR) at ‘B-‘ with a stable outlook, while at the same time affirming the bank’s Viability Rating at ‘b-‘.
BMB’s ratings reflect its small but growing business, its exposure to market risk, concentrated funding profile and small equity base. Fitch also recognises BMB’s success in reducing its exposure to private-equity commitments, its return to profitability, improved cash flow, efforts to develop new business areas and the progress made by the bank’s new management since 2009. Upside potential may arise from a stronger capital base, diversification of funding, and more consistent earnings.
BMB’s operating performance continued its recent recovery in 9M11 (operating profit of $1.1m) and the bank’s strategy to diversify its operations into asset management and trade finance is showing early signs of success. In 9M11, fee income growth offset a reduction in private equity realisations – with non private equity sources making up broadly two thirds of total operating income. In addition, the bank has significantly cut operating costs in recent years. Fitch expects BMB’s operating performance to continue to improve in 2012, as the new business lines continue to gain traction.
Despite recent deleveraging efforts, exposure to market risk remains high. At end-9M11, diversified investments in private equity funds represented around 38% of total assets (equivalent to 98% of shareholders’ equity). The portfolio has a bias towards diversified buy-out funds, most of which are investments in the US and Europe.
BMB’s funding is concentrated, and has been sourced mainly from two government/quasi government entities ($21.4m). Originally due for repayment in 2011, the bank rescheduled these liabilities thereby alleviating an aggregate $21.4m in liquidity pressure. Approximately half of these rescheduled payments are now due in 2012, for which the bank maintains adequate resources to service, in Fitch’s view
The regulatory Tier 1 and Fitch core capital ratios were 25.1% and 27.3%, respectively, at end-9M11. Fitch views capital as adequate, although could be improved if the bank is to achieve its growth aspirations. BMB aims to increase share capital by $75m over the next three years (currently $55m), and has concluded the process of raising $5.6m through a recent rights issue.
BMB offers its Middle-East-based high-net-worth and institutional clients a range of private-equity fund investments, asset management, trade finance, and investment banking services. BMB’s shares are listed on the Bahrain Stock Exchange. Al Fawares Holding, a Kuwaiti conglomerate, is BMB’s main shareholder with a 64.5% holding.