Moody's Investors Service has downgraded BMB Investment Bank's (BMB) long-term foreign currency deposit rating to B3 from B2 and has placed the rating on review for further downgrade. BMB's financial strength rating (FSR) was also downgraded, to E from E+.
According to Moody's, BMB has been suffering from a shortage of liquidity for the past few months and has not been able to renew the $75 million syndication that was due in December of last year; nor has the bank been able to repay it. Moody's considers BMB to be in default on its medium-term borrowings, and such a distressed situation is the main driver behind this downgrade.
Moody's notes that the B3 deposit rating reflects the likelihood of default on the bank's customer deposits. The B3 rating implies such customer deposits are likely to experience some delay in payment and a minor loss content.
The coverage of customer deposits by total assets was more than 330 percent at the end of September 2002, representing a low degree of possible loss content. Moody's points out that in the event of bank liquidation Bahraini law stipulates that customer deposits are senior to medium-term borrowings. Consequently, BMB's syndication would have been assigned a lower rating than the B3 assigned to senior deposits if it were to be rated.
BMB's B3 long-term deposit rating has been placed on review for further downgrade, as a final solution for the bank's liquidity shortage seems to be taking longer than expected, adds Moody's. A protracted solution signals a higher likelihood of the bank's liquidation, which may increase the possible losses senior depositors may incur as a result. During the review Moody's will focus on the bank's ability to secure funds, and on the losses or profit made as assets are sold in a distress situation.
BMB's E FSR reflects a loss-making bank with insufficient regulatory and economic capital, virtually no liquidity, and an eroded franchise, which is functioning in a very difficult operating environment says the rating agency. It is unlikely that the bank's financial health will recover this year to the point where a higher FSR would be warranted, even if more capital and funds were to be secured.
Established in 1982, BMB is headquartered in Manama, Bahrain. The offshore banking unit focuses on investment banking activities and development structured products for distribution in the Gulf. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
