Moody's Investors Service has downgraded Bahrain's BMB Investment Bank (BMB)’s long-term foreign currency deposit ratings to B2 from Ba3, and the financial strength rating (FSR) to E+ from D. Both ratings, which were placed on review in September, remain on review for further downgrade.
The main rationale behind this rating action is BMB's rapidly deteriorating liquidity position, says Moody's. During the initial review period it had become apparent that BMB's funding was being eroded due to the bank's creditors' lack of appetite for private equity risk together with concerns over geopolitical risk.
BMB has so far been able to service all its obligations on time, noted the rating agency. However, BMB's current tight liquidity position raises doubts about its future ability to repay, in a timely fashion, a $75 million medium-term facility coming due at the end of the year, if the bank's creditors decide not to roll it over. Such a lack of financial flexibility is more appropriately represented by the B2/E+ ratings, notes Moody's.
According to Moodys, although the bank appears to be currently solvent and has even recorded profits during the first six months of this year, pressure to liquidate assets in an effort to prop up liquidity may reverse the profitability trend and erode the bank's capital and its already weakened franchise.
At this point, it appears that support from BMB's shareholders and from the Bahrain Monetary Agency (BMA) - the Bahraini financial authorities is essential to secure the necessary confidence on the part of the bank's creditors to avoid a credit event.
During the review period, which the rating agency said will take a few weeks, the focus will be on a capital injection BMB is likely to receive from its shareholders, the support that the BMA would provide and the ability of the bank to secure stable long-term funding.
BMB is an off-shore bank incorporated in Manama, Bahrain and had consolidated total assets of $418.9 million in the first six months of 2002. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
