Fitch Ratings, the London-based international rating agency, has downgraded Bahrain International Bank's (BIB) ratings as follows: Long-term foreign currency rating to 'DDD' from 'BB+', Short-term foreign currency rating to 'D' from 'B', and Individual rating to 'E' from 'C/D'. The Support rating remains at '5'. At the same time the Long-term rating has been placed on Rating Watch Evolving from Negative.
The rating changes reflect BIB's current liquidity crisis which, the agency has been informed, has resulted in the bank issuing a 'standstill' notice to lenders, indicating that no repayments will be made over the next few months while management continues its efforts to secure additional funding.
In Fitch's opinion, the fact that some payments have not been made on time and that lending terms have been adversely changed constitutes a default. The agency's 'DDD' rating indicates the potential for high recovery, while the 'Evolving' Rating Watch reflects both the uncertainty in assessing recovery values at this point in time, as well as the potential for the rating to recover to a non-default level should management be successful in securing funding lines and/or tangible support be forthcoming from the Bahrain Monetary Agency (BMA).
In May-end 2002, Fitch had signaled concerns over the bank's liquidity position, noting its reliance on short-term wholesale funding and its vulnerability to changes in sentiment given that much of its borrowing matured before end-2002.
A combination of disappointing results, heightened regional tension, and the general vulnerability of investment banks to continued weak financial markets has caused increased lender concern. This has culminated in a decision by management to dispose of its investment securities portfolio, crystallizing a significant loss (estimated at $70-$80 million) in the process, in order to try to meet liquidity needs.
The impact on equity is expected to be somewhat lower as the bank had previously recognized fair value impairments in its trading and 'available for sale' portfolios. Management remains hopeful that a successful restructuring of the bank's liabilities can be achieved over the next few months that will enable a refocused and restructured operation to resume.
Capitalization has always been one of BIB's strengths, but has been somewhat eroded by recent events. Whilst the bank currently appears to be solvent, this is dependent upon valuations of illiquid real estate and private equity assets that cannot be estimated with any certainty in the current environment. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
