Moody's Investors Service has downgraded Bahrain International Bank's (BIB) long-term foreign currency deposit rating to B3 from Ba2, and its Financial Strength Rating (FSR) to E from D. The outlook is negative for the B3 deposit rating, and stable for the E FSR.
BIB's fast deteriorating liquidity position, which recently prompted the bank to dispose of some of its assets at a loss to meet part of its short-term obligations, is the main rationale behind this rating action, says Moody's.
The rating agency had signaled in a prior release its concern regarding BIB's increasing liquidity problems, where around 87 percent of BIB's total liabilities mature within one year, while a significant part of the bank's assets is constituted of non-liquid investments.
Heightened geopolitical risk coupled with BIB's structural liquidity problem have reduced creditors' appetite for BIB risk, making it difficult for the bank to refinance loans maturing over the next few months, and thus raising concerns over the bank's ability to meet its short-term obligations.
According to Moody's, while BIB remains solvent, its capitalization has been significantly eroded by the losses incurred in its asset disposal initiative. Expected support from shareholders is likely to maintain the bank's capitalization ratios above the regulatory minimum, but will not be sufficient to resolve the bank's tight liquidity.
Some degree of support from the Bahraini Monetary Agency (BMA) is expected but the extent of the support is uncertain at this time, and therefore cannot be factored fully into the ratings, says Moody's.
Moody's concluded by saying that future rating actions related to BIB will depend on the bank's ability to meet its short-term obligations on a timely basis, secure long-term funding, and effectively restructure its business and balance sheet. The rating agency added that BMA's positioning with respect to BIB's support may represent an important element preventing further rating downgrades for BIB.
Bahrain International Bank is headquartered in Manama, Bahrain and had total assets of $887.5 million at the end of 2001. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
