Moody's cuts Bahraini banks' ratings
Limassol, May 30, 2011
Moody's Investors Service has downgraded the long-term deposit ratings of three Bahraini banks - BBK, BMI and the National Bank of Bahrain (NBB) - to negative.
These rating actions are driven by: the deterioration in the banks' operating environment in light of recent unrest and a reassessment of the capacity of the Bahraini government to provide systemic support to the banking sector, said the ratings agency in a statement.
BBK, a pioneer in retail and commercial banking, was downgarded to Baa2 from A3, while top retail bank BMI Bank was assigned a Ba1 from Baa3. NBB) was downgraded to Baa1 from A3.
These rating actions follow Moody's decision on May 26 to downgrade by one notch Bahrain's government bond rating to Baa1 and assign a negative outlook.
Today's rating actions conclude the review for possible downgrade, which Moody's initiated last week.
Moody's expects that the recent political turmoil and the consequent deterioration in the operating environment will likely damage the country's growth prospects, thereby adversely impacting banks' asset quality, franchise strength and profitability over the near to medium term.
In terms of asset quality, Moody's highlights (i) potential further weakening in the real-estate sector, which accounts for more than 30 per cent of Bahraini banks' domestic lending (together with the construction sector) and (ii) high levels of corporate loan concentration as primary concerns.
The poor expected performance of the hospitality and retail-trade sectors and higher domestic unemployment will also likely trigger an increase in non-performing loans over the near to medium term, it added.
Moody's also expects that the slowdown in economic activity will limit business growth opportunities, which will, in turn, lead to increased competition for domestic banking franchises, constraining margins and overall profitability.
In addition to the affect of the operating environment on the banks' standalone credit profiles, the rating actions also reflect a downward repositioning of the government's capacity to provide systemic support to the banking sector, as illustrated by the sovereign rating downgrade on May 26.
Nevertheless, the ratings of the three banks continue to incorporate one notch of rating uplift from systemic support.-TradeArabia News Service