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Fitch Affirms National Bank of Bahrain at 'BBB'

Outlook Stable

Fitch Ratings-London-17 April 2012: Fitch Ratings has affirmed National Bank of Bahrain 's ( NBB ) Long-term Issuer Default Rating (LT IDR) at 'BBB' and Viability Rating (VR) at 'bbb'. The Outlook on the LT IDR is Stable. A full list of rating actions is at the end of this comment.

NBB 's IDRs, Support Rating and Support Rating Floor reflect Fitch's view that there is a high probability that the bank would receive support from the Bahraini state ('BBB'/Stable), if required. This view is based on NBB 's government-related shareholders and its leading franchise in the Kingdom of Bahrain. A change in the Bahrain sovereign rating would likely impact the NBB 's Support Rating Floor, and therefore its LT IDR. This is unlikely at present, as reflected in the Stable Outlook on the sovereign rating.

The VR reflects NBB 's consistent profitability, healthy asset quality, comfortable liquidity and strong capitalisation. It also considers NBB 's high reliance on a relatively small and competitive domestic environment, and concentrations in loans and deposits. Given the concentration of NBB 's activities in Bahrain, a deterioration in the local operating environment (in particular an escalation of the social unrest that commenced in Q111), could negatively affect the bank's VR, but this could also impact the sovereign rating. Fitch notes the bank's asset quality indicators, while relatively healthy (end-2011: non-performing loan (NPL) ratio of 1.8%), deteriorated somewhat owing to the unrest in 2011. A downgrade to the VR could occur if the negative asset quality trends witnessed in 2011 were to materially worsen.

Despite an uncertain operating environment, NBB 's operating performance proved to be resilient in 2011. Net profit increased 6% yoy, driven by healthy revenue growth and well-contained operating expenses. Fitch expects profitability to improve modestly in 2012, although it may be constrained by the bank's efforts to maintain reserve coverage, which has been declining in recent years. Funding is mainly from customer deposits (91% of non-equity funding), and the bank's liquidity position is comfortable. Fitch views the NBB 's capital position as strong, with a Fitch core capital ratio of 25.7% at end-2011.

At end-Q112, NBB had a guarantee for BHD49.9m from Arcapita, which has filed a petition under Chapter 11of the United States Bankruptcy Code in March 2012. This guarantee is for a secured project finance facility to one of Arcapita's associates (which is not included in Arcapita's Chapter 11 petition). Fitch understands the underlying exposure is performing to date, and is secured against project cash flows and real estate collateral.

Incorporated in 1957, NBB is a full service retail and commercial bank based in the Kingdom of Bahrain, where it has leading market shares in domestic loans and deposits. Its main shareholder is the Bahrain state (49% stake), through the wholly-owned Bahrain Mumtalakat Holding Company ('BBB'/Stable).

The rating actions are as follows:

Long-term IDR: affirmed at 'BBB'; Stable Outlook

Short-term IDR: affirmed at 'F3'

Viability Rating: affirmed at 'bbb'

Support Rating: affirmed at '2'

Support Rating Floor: affirmed at 'BBB'

Contact:
Primary Analyst
Shaun Miskell
Analyst
+44 20 3530 1504
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Secondary Analyst
Philip Smith
Senior Director
+44 20 3530 1091
Committee Chairperson
Alain Branchey
Senior Director
+33 1 44 29 9141

Media Relations: Michelle James, London, Tel: +44 0203 530 1574, Email: Michelle.James@fitchratings.com.

Additional information is available at www.fitchratings.com.

The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 16 August 2011, and 'Evaluating Corporate Governance', dated 13 December 2011, are available at www.fitchratings.com.

© Press Release 2012

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