Manama: Fitch Ratings has downgraded National Bank of Bahrain B.S.C.’s (NBB) long-term issuer default rating (IDR) to ‘B+’ from ‘BB-‘.
The Outlook is Stable. Fitch has also downgraded NBB’s Viability Rating (VR) to ‘b+’ from ‘bb-‘ and revised the Support Rating Floor (SRF) to ‘B’ from ‘BB-‘. A full list of rating actions is below.
Following the downgrade, the IDRs of NBB are now driven solely by its standalone creditworthiness. The downgrade reflects increased pressure on the bank’s VR from a weakened operating environment and, more specifically, the sovereign rating. The downward revision of the SRF reflects the sovereign’s weaker foreign-currency (FC) reserves and higher debt levels.
In accordance with Fitch’s policies, the issuer appealed and provided additional information to Fitch. The rating action is different to the original rating committee outcome.
NBB’s VR, which reflects the bank’s standalone credit profile, is capped by the operating environment in Bahrain and Bahrain’s sovereign rating. NBB is a systemically important retail bank in Bahrain with significant exposure to the sovereign and domestic operating environment. The VR considers the concentration of NBB’s operations in the challenging operating environment in Bahrain, the expected weakening of asset quality, high concentrations in loans and deposits, declining but healthy profitability, a strong domestic franchise, adequate capitalisation and a comfortable liquidity and funding profile.
NBB has a strong domestic franchise, accounting for 22% of the retail banking sector’s (i.e. banks with a retail banking license) domestic assets at end-1H20. The acquisition of Bahrain Islamic Bank (BISB) in January 2020 has increased its market share by around 6% and positioned NBB as the largest domestic-focused bank in Bahrain, in addition to strengthening its presence in retail banking (i.e. personal banking) and Islamic finance.
Revenue diversification is limited, with NBB’s branches in Saudi Arabia and the United Arab Emirates making only a small contribution to revenue (4% in 2019). Net interest income is the main driver of revenues (79% in 2019), but Fitch expects non-interest income to increase as NBB grows its client-related treasury business, transaction-banking capabilities, corporate-banking relationships and investment-banking activities, in line with management’s strategy.
