S&P lowers long-term rating on Bahrain bank

Standard and Poor's Ratings Services yesterday lowered its long-term counterparty credit rating on Bahrain-based Gulf International Bank (GIB) to "BBB+" from "A-" and put the rating on credit watch with negative implications due to deteriorating economic conditions.

At the same time, it affirmed the "A-2" short-term counterparty credit rating on the bank.

"The downgrade and credit watch placement reflect the material negative impact of global market dislocation and weakening regional economic conditions on GIB's business and financial profiles," said Standard and Poor's credit analyst Emmanuel Volland.

The bank's stand-alone credit profile is now weaker than the agency previously assessed. The deterioration has been faster and greater than anticipated, putting pressure on GIB's financial profile. Despite significant provisions taken in the past seven quarters (totalling $1.3 billion {Dh4.7bn}), additional material provisions against the bank's investment securities portfolio ($6.6bn net of provisions at September 30, 2008) are required to reflect the drop in fair value. "While we are confident that shareholder support will be forthcoming, a detailed plan has not yet been finalised," it said.

The rating action also reflects view that the bank's business profile has weakened and that its business model is to be revised.

"We also expect an increase – from extremely low levels – in credit risk cost that will alter the performance of the bank's corporate loan book ($13.5bn at the same date).

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