Standard & Poor’s Ratings Services has affirmed its ‘BBB+/A-2’ long- and short-term counterparty credit ratings on Bahrain-based Gulf International Bank (GIB) and removed from the CreditWatch, where they had been placed with negative implications on March 23, 2011. The outlook is stable.
“The rating action reflects our view that GIB is well insulated from sovereign and country risks related to the Kingdom of Bahrain (BBB/Watch Neg/A-3). Consequently, we rate GIB higher than our ‘BBB’ transfer and convertibility (T&C) assessment for Bahrain, which reflects our view of the likelihood of the sovereign restricting non-sovereign access to foreign exchange needed to satisfy the non-sovereign’s debt obligations,” S&P in a statement said.
“In addition, the affirmation takes into account the bank’s funding and liquidity position, which has demonstrated resilience in Bahrain’s recent turbulent operating environment. We also believe GIB could benefit, if necessary, from extraordinary support from its 98% owner, the Public Investment Fund (PIF; not rated) in the Kingdom of Saudi Arabia (AA-/Stable/A-1+), given the US$500 million five-year term loan the bank raised from PIF on March 14, 2011. Through the loan, granted just prior to the escalation in political and social unrest in Bahrain, we understand GIB aims to lengthen the term structure of its funding.”
“The stable outlook balances our opinion of GIB’s strong capitalization and shareholder support with its weak earnings generation and obstacles in implementing its new business model aimed at making GIB a more universal bank. The outlook also factors in our expectation that GIB will likely maintain its asset quality and liquidity metrics at their current adequate levels. We believe that the bank’s asset and earnings generation capacity will remain somewhat limited in 2011 and that management is seeking to address these weaknesses as it rolls out its business model.”
“A material deterioration in GIB’s core operational performance or asset quality, or a dramatic increase in its exposure to Bahrain-related assets or liabilities, could trigger a negative rating action. Any upgrade would likely stem from further improvement in GIB’s funding profile and the implementation of a business model that generates adequate and sustainable profitability, all other things being equal,” S&P added.