Standard & Poor’s Ratings Services said it was keeping its BB+ long-term counterparty credit rating on Bahrain-based BMI Bank B.S.C. on CreditWatch with negative implications, which it placed it on June 3, 2013. “At the same time, we affirmed our ‘B’ short-term counterparty credit rating on the bank,” S&P in a statement added.
“The CreditWatch action reflects that we are still waiting for the Central Bank of Bahrain to approve the merger between BMI Bank and Al-Salam Bank-Bahrain (not rated) before we can assess the business and financial profile of the new entity.
“We affirmed the short-term rating because there has been no major change in BMI Bank’s financial performance to date.
“Our original CreditWatch placement was based on our expectation that Oman-based BankMuscat, BMI Bank’s 49% shareholder, will see a significant dilution in its stake if the proposed merger goes ahead. We currently assess BMI Bank as strategically important to BankMuscat. As a result, we incorporate three notches of uplift from the ‘b+’ stand-alone credit profile (SACP) into our ratings on BMI Bank.
“Al-Salam Bank and BMI Bank received their shareholders’ approvals for the transaction in October and November 2013. Based on the accounted share swap rate, BankMuscat’s stake in the new bank will fall to around 15%. We understand that the banks are working on finalizing the transaction and presenting their plan to the Central Bank of Bahrain for its approval, and getting the other necessary regulatory approvals before the end of the first quarter of 2014.
“While the merged entity’s business position in Bahrain should be stronger than that of BMI Bank, potentially ranking fourth in assets, we have limited information to assess the future financial profile of the merged entity at this stage. Al-Salam Bank is a listed Sharia-compliant bank which largely engages in retail and investment banking related activities, whereas BMI Bank is a conventional bank with a focus on retail and commercial banking.
“We expect to resolve the CreditWatch, if and when the transaction goes through, taking into account that the business and financial profiles of the new entity after the merger, which will drive our assessment on the SACP of the bank; our reassessment of group support from BankMuscat, given the expected dilution of its stake; the systemic importance of the merged entity in Bahrain, which could positively affect our assessment of potential extraordinary government support and we understand that the merged bank will have a balance sheet of around $4.5 billion,” the statement added.