Fitch Ratings has upgraded Arab Banking Corporation’s (ABC) long-term issuer default rating (LT IDR) to BBB- from BBB+ and its viability rating (VR) to bbb- from bb+.
At the same time Fitch has upgraded BBK (BBK) LT IDR to BBB from BBB- and revised its support rating floor (SRF) to ‘BBB’ from BBB-.
The subordinated debt ratings of both banks have been upgraded by one notch, mirroring the upgrades of the banks’ LT IDRs. All other Bahraini banks’ ratings were affirmed.
The upgrade of ABC’s LT IDR and VR reflects the bank’s improved funding profile, continued resilient operating performance, strong capitalisation and healthy asset quality. In July 2012 and July 2013, ABC received a total $2billion in five-year funding from its core shareholders, the Central Bank of Libya (CBL: 59.4% stake) and the Kuwait Investment Authority (KIA: 29.7% stake), enabling ABC to access longer-tenor funding at attractive pricing.
The upgrade in the LT IDR and SRF of BBK equalises the ratings with those of its closest peer, National Bank of Bahrain (NBB). Both banks are leading retail and commercial banks in Bahrain, with similar market shares and large government stakes. Therefore, the Bahraini sovereign support assumptions of both banks have now been aligned.
“The rating actions follow a periodic review of the Bahraini banks,” Fitch in a statement said.
“The IDRs of three of the Bahraini banks are support-driven from different sources given the banks’ differing ownership structures. BBK’s IDRs, Support Rating and SRF are driven by support from the Bahraini sovereign (BBB/Stable). Fitch’s view of support for BBK is based on its systemic importance as a major retail and corporate bank in Bahrain, and the Bahraini authorities’ high propensity to support domestic commercial banks. BBK is 32% owned by the Bahraini government, which also supports Fitch’s view on sovereign support.”
Ahli United Bank BSC’s (AUB) IDRs and Support Rating reflect the high probability of institutional support from its core shareholder, the Public Institute for Social Security (PIfSS), an arm of the State of Kuwait (AA/Stable), which holds an 18.5% stake. The very strong links between PIfSS and AUB date back to before the creation of AUB, and include PIfSS’s strong interest as shareholder in both AUB and its Kuwaiti subsidiary (12.2% stake). Nevertheless, support from PIfSS is constrained by Bahrain’s Country Ceiling (BBB+) and the Stable Outlook reflects that on the Bahraini sovereign ratings.
Although the Central Bank of Bahrain (CBB) regulates all licenced banks in Bahrain, Fitch does not factor any Bahraini sovereign support in the ratings of the wholesale banks, Gulf International Bank (GIB) and ABC.
GIB’s IDRs and Support Rating are driven by the extremely high probability of support from the bank’s longstanding majority shareholder, the Public Investment Fund of Saudi Arabia (AA-/Positive; 97.2% stake), despite the bank being licenced and headquartered in Bahrain. Extraordinary support for GIB from the Saudi authorities has been clearly demonstrated in the past. The ratings are not constrained by the Bahrain Country Ceiling, reflecting GIB’s wholesale banking licence, its US-dollar assets and liabilities and its very limited exposure to Bahrain.
The LT IDRs of both National Bank of Bahrain (NBB) and ABC are driven by their respective VRs (i.e. standalone strength). In the case of NBB, the Support Rating and SRF are based on the high probability of sovereign support from the Bahraini authorities, if required. This view is based on NBB’s leading domestic franchise and its significant Bahraini government ownership (49%). The Support Rating of ABC is driven by potential institutional support from its founding shareholders, the CBL and the KIA. While support from the CBL is difficult to assess, Fitch would expect some degree of solvency support from the KIA.
The IDRs, Support Ratings and SRFs of NBB and BBK are sensitive to a negative rating action on the Bahraini sovereign rating, or a change in Fitch’s view on the willingness of the authorities to provide support to the banks.
AUB’s IDRs and Support Rating are sensitive to any change in Fitch’s view of PIfSS’s ability or propensity to provide support or to changes in Bahrain’s Country Ceiling. An upward revision of Bahrain’s Country Ceiling would lead to an upgrade of AUB’s Long-term IDR by one notch. The IDRs would be downgraded if there is a downgrade of Bahrain’s Country Ceiling or if Fitch believes that PIfSS’s ability or willingness to support has diminished.
GIB’s IDRs and Support Rating are sensitive to a downgrade of the sovereign rating of Saudi Arabia, or a change in Fitch’s view on the willingness of the Saudi authorities to support the bank. The agency considers this unlikely at present, given the Positive Outlook on the sovereign rating.
ABC’s Support Rating is sensitive to a change in Fitch’s view on the ability or willingness of CBL and KIA to provide institutional support, as needed.