Fitch affirms ratings of five Bahrain banks

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Fitch Ratings has affirmed National Bank of Bahrain’s (NBB’s), BBK’s and Arab Banking Corporation’s (ABC’s) long-term issuer default ratings (IDRs) at BBB-. Fitch has also affirmed Ahli United Bank’s (AUB’s) IDR at BBB+ and Gulf International Bank’s (GIB’s) at A. The outlooks on all the banks’ long-term IDRs are stable.

NBB’s and BBK’s support ratings and support rating floors reflect Fitch’s expectation of a high probability of sovereign support from the Bahraini authorities, if required.

“Our view of support is based on the banks’ systemic importance as major retail and corporate banks in Bahrain, and the Bahraini authorities’ high propensity to support domestic commercial banks,” Fitch said.

The Bahraini government holds significant stakes in both banks: 32 per cent at BBK and Bahrain Mumtalakat Holding Company, the investment arm of the Government of Bahrain, holds a 44.2 per cent stake in NBB. This is also a factor in Fitch’s view on sovereign support.

ABC’s Support Rating is driven by potential institutional support from its founding shareholders, the Central Bank of Libya (CBL) and the Kuwait Investment Authority (KIA).

“While support from the CBL is difficult to assess, Fitch expects some support from the KIA,” Fitch said.

“Although the Central Bank of Bahrain (CBB) regulates all licenced banks in Bahrain, Fitch does not factor any Bahraini sovereign support in the ratings of the wholesale banks, GIB and ABC,” Fitch said.

“AUB’s IDR and support rating reflect the high probability of institutional support from its core shareholder, the Public Institute for Social Security (PIfSS), an arm of the State of Kuwait, which holds an 18.9 per cent stake,” Fitch said. “The very strong links between PIfSS and AUB date back to before the creation of AUB, and include PIfSS’s strong interest as shareholder in both AUB and its Kuwaiti subsidiary (12.2 per cent stake). However, support from PIfSS is constrained by Bahrain’s country ceiling (BBB+) and the stable outlook reflects that on the Bahraini sovereign rating.”

GIB’s IDR and support rating are driven by Fitch’s expectation of an extremely high probability of support from the bank’s longstanding majority shareholder, the Public Investment Fund of Saudi Arabia, despite the bank being licensed and headquartered in Bahrain.

“Our view of support is driven to a large degree by the bank’s ownership and a strong track record of support, which has been clearly demonstrated in the past, and is the main reason GIB’s IDR and support rating floor are above those of all but the largest Saudi banks,” Fitch said. “The ratings are not constrained by the Bahrain country ceiling, reflecting that the majority of GIB’s assets and liabilities are outside of Bahrain, and would not be subject to Bahraini convertibility risks, in Fitch’s view.”

ABC and GIB have very limited exposure to Bahrain, despite being headquartered there. BBK and NBB are more constrained by the local operating environment. AUB is geographically diversified, with significant operations in Kuwait and elsewhere in the Middle East and the UK, with Bahrain on-shore operations contributing less than 13 per cent of AUB’s profit.