MANAMA: Moody’s says its negative outlook rating on BDB reflects the bank’s high-risk loan book and reliance on market funding, balanced against substantial capital buffers and the benefits of government ownership.
Moody’s has assigned Bahrain Development Bank (BDB) first-time issuer ratings of Baa2/P-2 with a negative outlook on 8th January 2015.
“The bank faces high credit risks from its lending to small and medium-sized enterprises (SMEs) and start-up companies, most of which are unable to access financing from commercial banks. The bank also has a mandate to create jobs and support social projects meaning that not all decisions are taken on a purely commercial basis. Problem loans are considerably higher than for overall the banking sector as a result (at 11.3% of assets vs. a sector-average of 7.2%),” Moody’s in a statement said.
“Bahrain Development Bank (BDB) is reliant on wholesale funding from a limited number of sources, another credit negative.
“This funding from financial institutions is less stable than deposits and carries higher refinancing risk when loan terms expire. Strong ties with these creditors, on account of the bank’s government ownership should, however, ensure the bank has continued access to the funding it needs.
“The risks highlighted above are mitigated to large extent by the bank’s robust capital cushion which is considered major credit strength. BDB’s Tier 1 capital ratio stood at 45.2% as of June 2014, equity to assets 42.9%, and the bank received another BD2.25 million of capital from the government in December 2014, increasing capital by an additional 14 basis points, according to our estimates. This high level of capital enables the bank to absorb significant credit losses if they materialise.”