(MENAFN- Capital Intelligence (Cyprus) Ltd) 25th June 2019
National Bank of Bahrain’s Foreign Currency Rating Affirmed
Capital Intelligence Ratings (CI Ratings or CI), the international credit rating agency, today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of National Bank of Bahrain B.S.C. (NBB) at ‘BB’ and ‘B’, respectively. The LT FCR Outlook remains Negative. At the same time, CI Ratings has assigned a Bank Standalone Rating (BSR) to the Bank of ‘bb’ – also with a Negative Outlook − as well as a Core Financial Strength (CFS) rating of ‘bbb-’ and an Extraordinary Support Level (ESL) of Moderate.
The Bank’s Financial Strength Rating (FSR) and Support Rating have been withdrawn in line with the changes to CI’s Bank Rating Methodology announced in April 2019. CI will phase out FSRs and Support Ratings for all rated banks this year.
NBB’s LT FCR is set at the same level as the Bahrain sovereign given the Bank’s majority government ownership and systemic importance. The Moderate ESL does not result in any uplift for the Bank’s LT FCR because the BSR is already at the sovereign level. Although we deem the government’s willingness to provide support to be high, its financial capacity may be limited, as indicated by Bahrain’s sovereign LT FCR (‘BB’ with a Negative Outlook).
The Bank’s BSR reflects a CFS rating of ‘bbb-’ and the constraints imposed by Bahrain’s operating environment risk anchor (OPERA) of ‘bb-’. The CFS is underpinned by the NBB’s well-established business franchise, including access to government business, strong liquidity and customer deposit funding, and consistently robust profitability. Also supporting the CFS are the high CARs, as well as good management. The major factors constraining the CFS are the Bank’s high exposure to Bahrain sovereign credit risk and the challenging operating environment, as well as the concentrations in both assets and liabilities. The other constraint is the comparatively high level of stage 3 loans and low loan-loss reserve cover, although NPLs are secured by tangible collateral. Bahrain’s OPERA is at a level indicative of moderate risk and is driven by increased fiscal and external vulnerabilities arising from low oil prices, rising public debt, and the erosion of fiscal and foreign reserve buffers. Bahrain currently has very limited capacity to absorb economic and financial sector shocks, although the risks associated with rising gross public financing needs are partly mitigated by demonstrated financial support from other GCC states.
In CI’s opinion NBB’s business model is able to withstand economic cycles given its focus on core banking coupled with the strong government sponsorship. As the Kingdom of Bahrain’s flagship bank, NBB’s business franchise and market share are major credit strengths. The longstanding association with the government underpins the strong degree of depositor confidence. This in turn supports NBB’s strong funding and liquidity profile. Profitability has been continually strong at all levels reflecting good levels of income generation including a high, and increased, net interest margin. The good earnings quality is expected to ensure that operating profitability will remain strong and support future provisioning requirements. Capitalisation levels remain high, with regulatory capital consisting of largely loss-absorbing CET 1 funds. The high CAR is a partly a function of the zero risk weighting applied to Bahrain government securities.
In terms of ratings constraints, the Bank is exposed to high Bahrain sovereign credit risk given the large concentration of assets in government bonds. Customer concentrations are also high in both the credit portfolio and deposits, with this being a consequence of the Bank’s association with the government. In our view, however, government deposits have historically been stable despite Bahrain’s increased fiscal pressures. NBB’s loan asset quality represents a challenge to some degree given the prevailing high credit risk in the economy.
The Outlook for the LT FCR and BSR is Negative, indicating that the ratings are likely to be lowered by one notch over the next 12 months if Bahrain’s sovereign ratings are reduced. NBB’s ratings and Outlook remain closely correlated with Bahrain’s ratings.
CONTACT
Primary Analyst
Morris Helal
Senior Credit Analyst
Tel: +357 2526 0000
E-mail: morris.helal@ciratings.com
Secondary Analyst & Rating Committee Chairman
Rory Keelan
Senior Credit Analyst
E-mail: rory.keelan@ciratings.com
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