(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has lowered the Long-Term Foreign Currency Rating (LT FCR) of National Bank of Bahrain B.S.C. (NBB) to ‘B+’ from ‘BB-’. This action follows the recent downgrade of Bahrain’s LT FCR (‘B+’ from ‘BB-’) and the revision of the Outlook on the rating to Stable from Negative. The Bank’s Short-Term Foreign Currency Rating (ST FCR) has been affirmed at ‘B’. The Bank’s LT FCR Outlook has also been revised to Stable from Negative, in line with the sovereign outlook. At the same time, CI Ratings has lowered NBB’s Bank Standalone Rating (BSR) to ‘b+’ from ‘bb-’ and revised the BSR Outlook to Stable from Negative. NBB’s ratings and Outlook remain closely correlated with Bahrain’s sovereign ratings. The Bank’s Core Financial Strength (CFS) of ‘bbb-’ and Extraordinary Support Level (ESL) of Moderate have both been affirmed.
Since NBB’s LT FCR is set at the same level as that of the Bahrain sovereign, the ESL of Moderate does not result in any uplift for the Bank’s LT FCR. Given the significant direct exposure to Bahrain sovereign debt (equivalent to 2.7x equity), in CI’s opinion, NBB would not have the capacity to withstand sovereign induced stress. Although we deem the authorities’ willingness to provide support to be high in view of NBB’s majority government ownership and systemic importance, Bahrain’s financial capacity is considered limited as indicated by the sovereign ratings.
The Bank’s BSR is derived from a CFS rating of ‘bbb-’ and the constraints imposed by Bahrain’s operating environment risk anchor (OPERA) of ‘b+’ (lowered from ‘bb-’ following the recent sovereign rating action). The key credit strengths are NBB’s majority sovereign ownership, a well-established business franchise underpinned by Bahrain Islamic Bank’s acquisition in 2020, and strong liquidity supported by customer deposit funding, notably the retail variety. Other key rating supporting factors are the Bank’s consistently robust profitability, high capital ratios and prudent leverage, as well as good management. Major credit challenges include the Bank’s high exposure to Bahrain sovereign credit risk and the challenging operating environment, increased loan stress in the face of the pandemic, volatile oil prices, as well as concentrations in both assets and liabilities.
Bahrain’s OPERA is at a level indicative of high risk and is driven by increased fiscal and external vulnerabilities arising from high and 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 the demonstrated financial support from other GCC states.
Rating Outlook
The Outlook for both the LT FCR and BSR is Stable, indicating that the ratings are unlikely to change over the next 12 months. This reflects our view that NBB’s credit risk profile as measured by key metrics will more than likely be maintained at the current level, notwithstanding Bahrain’s potential economic headwinds and regional geopolitical tensions.
Rating Dynamics: Upside Scenario
We do not expect a change in NBB’s ratings unless our assessment of Bahrain’s sovereign credit risk and/or OPERA improves. This is currently seen as being unlikely within a 12-month timeframe.
Rating Dynamics: Downside Scenario
While not our current expectation, the Bank’s ratings could be reduced by one notch over the next 12 months in the event Bahrain’s sovereign ratings are downgraded. The ratings could also be lowered if NBB’s key credit metrics deteriorated significantly.
Contact
Primary Analyst: Morris Helal, Senior Credit Analyst; E-mail: morris.helal@ciratings.com
Secondary Analyst and Committee Chairperson: Rory Keelan, Senior Credit Analyst
About the Ratings
The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.
The following information sources were used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2017-20 and H1 2021. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. CI considers the quality of information available on the rated entity to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.
The principal methodology used to determine the ratings is the Bank Rating Methodology, dated 3 April 2019 (see Information on rating scales and definitions, the time horizon of rating outlooks, and the definition of default can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at
This rating action follows an ad hoc review of the rated entity. Ratings on the entity were first released in June 1986. The ratings were last updated in June 2021. The ratings and rating outlook were disclosed to the rated entity prior to publication and were not amended following that disclosure. The ratings have been assigned or maintained at the request of the rated entity or a related third party.
Conditions of Use and General Limitations
The information contained in this publication including opinions, views, data, material and ratings may not be copied, distributed, altered or otherwise reproduced, in whole or in part, in any form or manner by any person except with the prior written consent of Capital Intelligence Ratings Ltd (hereinafter “CI”). All information contained herein has been obtained from sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error or other factors by third parties, CI or others, the information is provided “as is” and CI and any third-party providers make no representations, guarantees or warranties whether express or implied regarding the accuracy or completeness of this information.
Without prejudice to the generality of the foregoing, CI and any third-party providers accept no responsibility or liability for any losses, errors or omissions, however caused, or for the results obtained from the use of this information. CI and any third-party providers do not accept any responsibility or liability for any damages, costs, expenses, legal fees or losses or any indirect or consequential loss or damage including, without limitation, loss of business and loss of profits, as a direct or indirect consequence of or in connection with or resulting from any use of this information.
Credit ratings and credit-related analysis issued by CI are current opinions as of the date of publication and not statements of fact. CI’s credit ratings provide a relative ranking of credit risk. They do not indicate a specific probability of default over any given time period. The ratings do not address the risk of loss due to risks other than credit risk, including, but not limited to, market risk and liquidity risk. CI’s ratings are not a recommendation to purchase, sell, or hold any security and do not comment as to market price or suitability of any security for a particular investor.
The information contained in this publication does not constitute investment or financial advice. As the ratings and analysis are opinions of CI they should be relied upon to a limited degree and users of this information should conduct their own risk assessment and due diligence before making any investment or other business decisions.
Copyright © Capital Intelligence Ratings Ltd 2021
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.