(The following statement was released by the rating agency)
LONDON, December 09 (Fitch) Fitch Ratings has revised the
Outlook on National
Bank of Bahrain (NBB) and BBK B.S.C. (BBK) to Negative from
Stable, while
affirming their Long-term Issuer Default Ratings (IDRs) at
‘BBB-‘. A full list
of rating actions is available at the end of this rating action
commentary.
The rating actions follow Fitch’s revision of the Outlook on the
Bahraini
sovereign rating to Negative from Stable (see Fitch revises
Bahrain’s Outlook to
Negative; Affirms at ‘BBB-‘ dated 4 December 2015 on
www.fitchratings.com). The
revision of the Outlooks on the two banks’ IDRs reflects (1) 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, as indicated by the Negative Outlook on the sovereign
rating as well as
(2) an increased likelihood of a downgrade of both banks’
Viability Ratings
(VRs) if the operating environment weakens.
KEY RATING DRIVERS
IDRS, VIABILITY RATINGS AND DEBT
NBB’s and BBK’s Long-term IDRs are driven by their standalone
strength as
reflected in their VRs. The loan books of each of the
Fitch-rated Bahraini banks
have different geographic risk profiles as a result of their
different business
models and strategies. The domestic retail banks, BBK and NBB,
have a
significant presence in the domestic market, and so are
generally constrained by
the local operating environment.
NBB’s VR reflects the bank’s strong capitalisation, which we
expect to remain a
strength 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. It also
considers NBB’s
reliance on a small and competitive domestic environment and
high concentrations
in both loans and deposits.
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. The VR also considers the bank’s
concentrated loan
book and its dependence on the undiversified Bahraini market.
BBK’s senior debt ratings are aligned with the bank’s IDRs.
BBK’s subordinated debt is rated one notch below the bank’s
Long-term IDR,
reflecting below-average recoveries.
SUPPORT RATING AND SUPPORT RATING FLOOR
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.
The Bahraini government holds significant stakes in both banks:
32% at BBK and
Bahrain Mumtalakat Holding Co (the investment arm of the
Government of Bahrain)
holds a 44.2% stake in NBB, which also is a factor in Fitch’s
view on sovereign
support.
RATING SENSITIVITIES
IDRs, VRs, SRs, SRFs AND DEBT
A downgrade in Bahrain’s sovereign rating would be mirrored in
all ratings. The
VRs would be downgraded, as it is Fitch’s view that it would not
be appropriate
to assign either bank a VR above the Bahraini sovereign, due to
both NBB and BBK
being domestic banks with significant exposure to the sovereign
and the domestic
operating environment. At the same time NBB’s and BBK’s SRs and
SRFs would also
be downgraded and revised lower, respectively, to reflect a
weakening of the
Bahraini authorities’ ability to provide support. The IDRs would
be downgraded
as a consequence of both VRs and SRFs being downgraded and
lowered,
respectively.
In addition, downside risk to NBB’s VR may arise from further
deterioration in
asset quality. Downside risk to BBK’s VR could also arise if
asset quality or
capitalisation considerably weakens from current levels.
Downside risk to the SRs and SRFs could also arise from reduced
sovereign
propensity to support the largest Bahraini banks.
BBK’s senior and subordinated debt ratings are sensitive to the
same
considerations that might affect the bank’s Long-term IDRs.
The rating actions are as follows:
BBK:
Long-term IDR affirmed at ‘BBB-‘; Outlook revised to Negative
from Stable
Short-term IDR affirmed at ‘F3’
Viability Rating affirmed at ‘bbb-‘
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB-‘
Senior unsecured debt affirmed at ‘BBB-‘
Subordinated debt affirmed at ‘BB+’
NBB:
Long-term IDR affirmed at ‘BBB-‘; Outlook revised to Negative
from Stable
Short-term IDR affirmed at ‘F3’
Viability Rating affirmed at ‘bbb-‘
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB-‘
Contact:
Primary Analyst
Laila Sadek
Director
+44 20 3530 1308
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Maria Irusta Barasoain
Analyst
+44 20 3530 1283
Committee Chairperson
Eric Dupont
Senior Director
+33 144299131
Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153,
Email:
elaine.bailey@fitchratings.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Bank Rating Criteria (pub. 20 Mar 2015)
here
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
here

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Solicitation Status
here
Endorsement Policy
here

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