Fitch Ratings has upgraded Bahrain's Gulf International Bank's (GIB) Long-Term Foreign Currency Rating to A- from BBB+, and changed the Support rating to 1 from 2, stated a press release.
The bank's Short-Term Foreign Currency Rating and Individual Rating have been affirmed at F2 and C, respectively and the Rating Outlook is Stable. At the same time, the agency has affirmed GIB's $325 million floating-rate notes (FRNs), maturing in 2007, at BBB+.
The upgrade reflects a strengthening of the ability of GIB's shareholders to support the bank, if this was ever required. GIB is 72.5 percent owned, in equal proportions, by the six member governments of the Gulf Cooperation Council (GCC) -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). The remaining shares are held by the Saudi Arabian Monetary Agency, with a 22.2 percent stake, and JP Morgan Overseas Capital Corporation with a 5.3 percent stake.
A prolonged period of high energy prices and healthy economic growth have led to an improvement in the public finances of the GCC states, which implies a stronger ability to support GIB. All six governments have shown their willingness to act together to support GIB and other jointly owned ventures in the past, and Fitch believes they would have a high propensity to do so in the future. Hence, in Fitch's opinion, there is now an extremely high probability of GIB being supported by the GCC governments should it ever be necessary.
The affirmation of the FRNs' rating reflects the relative subordination of the FRNs to deposits in accordance with the terms of the Bahrain Monetary Agency Law. In this respect, the Agency Law differs from the Bahrain Commercial Companies Law, under which senior debt ranks pari passu with deposits.
The recent restructuring of two small offshore investment banks in Bahrain showed that the Agency Law would take precedence in the event of a bank liquidation. It is possible that the Agency Law may be amended in the future to bring it line with the Companies Law, in which case the rating assigned to GIB's FRNs would be equalized again with the Long-term foreign currency rating.
The implementation of a Gulf merchant banking strategy, which began at the beginning of 2002, has contributed to a strengthening of GIB's financial position. Growth in fee and treasury-related income is leading to an improvement in the quality of earnings. Costs have come down as a result of the rationalization of group operations and a re-focusing of activities within Gulf International Bank (UK), the bank's London subsidiary.
GIB's risk profile is decreasing as it withdraws from non-GCC lending and reduces its high yield bond book. High provision charges, which in 2001 and 2002 were largely related to these portfolios, should be significantly lower in the future. An increase in term financing has enhanced the bank's funding structure and capital ratios remain adequate. A further improvement in the bank's profitability, which is currently modest by international standards, and in its franchise and risk profile, is likely to lead to an upgrade of the Individual rating.
Based in Bahrain, and with a principal operating subsidiary in London, GIB provides commercial and investment banking services to financial institutions, corporates and governments in the Gulf and to multinationals active in the region. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
