Fitch Ratings has maintained National Bank of Bahrain’s (NBB) Long-term Issuer Default Rating (IDR) of ‘BBB’, Individual Rating of B/C and Support Rating Floor of ‘BBB’ on Rating Watch Negative (RWN). The agency has affirmed the Short-term IDR at ‘F3’ and Support Rating at ‘2’.
NBB’s Long-term IDR is currently equalised with the Bahraini sovereign based on Fitch’s view that there is a high probability that NBB would be supported based on its leading status in the domestic market, the government of Bahrain’s 49% ownership and the authorities’ ability and strong propensity to maintain confidence in a relatively small banking system. The RWN on NBB’s Long-term IDR mirrors the RWN on the Bahraini sovereign’s ratings. Hence a downgrade of the Bahraini Sovereign would result in a downgrade of NBB’s Long-term IDR.
The RWN on NBB’s Individual Rating reflects the highly uncertain political and economic outlook in Bahrain and the potential impact that the recent unrest could have on NBB’s profitability, asset quality, funding and liquidity, although Fitch currently views these to be adequate and expects any potential impact to be limited.
NBB’s future profitability could be hampered by weaker business volumes and higher impairment charges, although performance proved resilient in Q111. Net income increased 3% yoy to BHD13.6m, driven by rising net interest income, mainly reflecting lower interest expense. Asset quality indicators are strong, with impaired loans at a low 1.3% of gross loans at end-2010 and reserve coverage of 123%. Liquidity is sound with a loans/assets ratio of 42% at end-2010 and loans/deposits ratio of 55%. The bank’s Tier 1 ratio at end-2010 was a strong 18.2%.
NBB was incorporated in 1957. It has a leading franchise in Bahrain, with a network of 24 branches.
“Fitch will monitor future developments and expects to resolve the RWN on NBB’s Long-term IDR once the RWN on Bahrain’s Sovereign IDRs is resolved. The RWN on NBB’s Individual Rating will be reviewed within three months and resolved once the impact of the recent unrest in Bahrain on NBB’s financial profile becomes clearer,” it added.