Global ratings agency Fitch Ratings has placed Bahrain-based Bank of Bahrain and Kuwait's (BBK) Individual Rating of "C/D" on negative watchlist.
Fitch has also affirmed BBK's Long-term Issuer Default Rating (IDR) at "A-" with a stable outlook, Short-Term IDR at "F2", Support Rating at "1" and Support Rating Floor at "A-". The ratings agency said the move is due to the bank's recent large impairment charges for investment securities of BD71 million (Dh691m) and net movement in cumulative changes in fair value of investments (BD41m) in equity.
The agency expressed concern that the bank's performance in 2009 may also be negatively impacted by losses from investment securities. While the bank has fully provided for its exposure to structured investment vehicles of BD57m and Lehman Brothers Holding, the bank has some residual exposure to collateralised debt obligations in its credit default swaps book, where market conditions continue to be extremely adverse.
BBK is exposed to fairly substantial market risks from its portfolio of debt securities as well some equity investments. Further negative pressure on BBK's Individual Rating arises from its tightened liquidity and substantially increased exposure to property lending in 2008. Fitch Ratings will review the bank's rating again after the first half results in July. BBK's Individual Rating also reflects its significant domestic franchise and adequate asset quality and capitalisation.
Fitch considers BBK's liquidity to be tight as its reliance on wholesale funding has increased in the worsening market conditions, and competition for local customer deposits has meant that loans grew faster than customer deposits, resulting in deteriorating loan/deposit ratios.
Funding is mainly from customer deposits but the funding profile is strengthened by some long-term borrowing. BBK's capitalisation was adequate in 2008 following a Q407 BD50m rights issue. The Fitch eligible capital ratio was at 14.4 per cent at the end of first nine months of 2008.