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Fitch Ratings announced today that it had revised its outlook for National Bank of Bahrain (NBB) and Bank of Bahrain & Kuwait (BBK) to negative from stable but affirmed their long-term issuer default ratings (IDRs) at BBB-.
The actions follow Fitch’s revision of the outlook on Bahrain’s sovereign rating of BBB- to negative from stable on 4 December 2015.
Fitch said the revision of the outlooks on the two banks’ IDRs reflected the increased likelihood of a downgrade of the support ratings (SRs) and support rating floors (SRFs) following the weakening of Bahrain’s ability to support its domestic banks and an increased likelihood of a downgrade of both banks’ viability ratings (VRs) if the operating environment weakens.
Fitch said BBK and NBB have a significant presence in the domestic market, and so are generally constrained by the local operating environment.
Fitch said NBB has strong capitalisation which is expected to remain despite some expected weakening in the event of future asset growth.
“The rating also reflects the bank’s leading domestic franchise, consistent and solid profitability, generally healthy asset quality despite a fairly high headline impaired loan ratio and sound liquidity,” Fitch said. “It also considers NBB’s reliance on a small and competitive domestic environment and high concentrations in both loans and deposits.”
Fitch said BBK’s VR is supported by the bank’s satisfactory and fairly resilient financial performance, despite the uncertain operating environment in Bahrain.
“Its well-established franchise and satisfactory funding and liquidity indicators are important rating drivers,” Fitch said. “The VR also considers the bank’s concentrated loan book and its dependence on the undiversified Bahraini market.”
NBB’s and BBK’s SRs and SRFs 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 owns 32 per cent of BBK. Bahrain Mumtalakat Holding Company, the investment arm of the Bahrain government, owns 44.2 per cent of NBB.