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Various Rating Actions Taken On Three Bahraini Banks Following Sovereign Downgrade And CreditWatch Placement

OVERVIEW

On Feb. 21, 2011, we lowered the ratings on the Kingdom of Bahrain and subsequently placed them on CreditWatch negative.

We are therefore placing the ratings on Ahli United Bank B.S.C. and BMI Bank B.S.C. on CreditWatch negative.

At the same time, we are affirming our ratings on Gulf International Bank B.S.C.

The CreditWatch placements reflect our view that there is a risk of additional pressure on the sovereign credit ratings on Bahrain. We also believe the political and social uncertainty in the country could have a direct and indirect impact on the banks' financial profiles.

PARIS (Standard & Poor's): Standard & Poor's Ratings Services said today that it placed its 'A-/A-2' long- and short-term counterparty credit ratings on Ahli United Bank B.S.C. (AUB) and 'BBB-/A-3' long- and short-term counterparty credit ratings on BMI Bank B.S.C. on CreditWatch with negative implications. In addition, we affirmed our ratings on Gulf International Bank B.S.C. ( GIB ) at 'BBB+/A-2'. The outlook on GIB remains stable.

The rating actions follow those on the Kingdom of Bahrain (A-/Watch Neg/A-2; for more information, please see "Kingdom of Bahrain Ratings Lowered By One Notch To 'A-/A-2' On Heightened Political Risk; On CreditWatch Negative," published Feb. 21, 2011), which reflect our reappraisal of political risks in Bahrain.

Today's rating actions on AUB and BMI Bank reflect our view of the risk of a deterioration of the sovereign's creditworthiness, which we believe could hamper economic growth prospects following the recent unrest. In our opinion, the current situation could have a negative impact on rated banks' financial profiles, especially their asset quality and profitability, but potentially also their liquidity positions. We will also reassess the ability of the government of Bahrain to provide extraordinary support to AUB in case of need, as the long-term rating on AUB incorporates a one-notch uplift from its stand-alone credit profile (SACP). Given the ongoing situation in the country, we will monitor carefully the functioning of the domestic payment and interbank systems and the stability of the banks' deposit base.

Standard & Poor's aims to resolve the CreditWatch listings on AUB and BMI Bank within the next three months. During this time, we expect the course of political events will become clearer, as well as their impact on the Bahraini economy. However, resolution of the CreditWatch will also depend on our updated assessment of the banks' future SACPs, notably:

• The extent of any deterioration in asset quality and operational performance in 2011-2012;

• The banks' capital positions and other sources of additional financial flexibility, notably parental or government support;

• The banks' strategy to overcome potential funding challenges and subsequent implications for their liquidity positions.

Ahli United Bank B.S.C. (A-/Watch Neg/A-2)

The ratings on AUB reflect its leading commercial position in Bahrain, better geographic diversification compared with regional peers, and its well-defined strategy. The ratings are constrained by the bank's capitalization, which is below that of regional peers, exposure to the real estate and construction sector in a weakened operating environment, and high single-name concentration in loans and deposits (although some are related to AUB's shareholders). The long-term rating on AUB includes one notch of uplift above its SACP. We will reassess the ability of the government of Bahrain to provide extraordinary support to AUB in case of need.

AUB has demonstrated strong resilience to the less benign operating environment in the Gulf Cooperation Council. It reported a net profit of $265.5 million in 2010--a 32% increase over the previous year. Nevertheless, we believe a further material deterioration in the situation in Bahrain could have a negative impact on AUB's SACP. On a positive note, less than 20% of AUB's assets and revenues originate from Bahrain.

BMI Bank B.S.C. (BBB-/Watch Neg/A-3)

The ratings on BMI Bank reflect its small customer franchise, limited track record, deteriorated asset quality and financial performance, and weak funding profile. These negative factors are somewhat balanced by its ownership structure and strong capitalization. BMI is 49% owned and controlled by BankMuscat S.A.O.G. (BBB+/Stable/A-2), which is itself ultimately controlled by the Sultanate of Oman (A/Stable/A-1). We consider that BMI 's part ownership by, increasing cooperation with, and strategic importance to, BankMuscat mean that parental support would be likely if needed. The long-term rating on BMI Bank is therefore two notches higher than the bank's SACP. We believe that the recent deterioration in the operating environment of Bahrain could strain the bank's liquidity, as well as its asset quality, which has already deteriorated much faster than its peers.

Gulf International Bank B.S.C. (BBB+/Stable/A-2)

The ratings on GIB reflect the bank's strong ownership structure, strong capitalization and efficiency, and improved liquidity. The ratings on GIB are constrained by its weak profitability, reliance on short-term and concentrated wholesale funding, and challenges regarding the bank's future strategy. The Public Investment Fund in the Kingdom of Saudi Arabia (AA-/Stable/A-1+) owns a 97.2% stake in GIB . We classify GIB as a government-related entity (GRE). In accordance with our criteria for GREs, we consider that GIB has a "very strong" link with its shareholders but its role is of "limited importance" to them. The long-term rating on GIB is therefore two notches above its SACP to reflect our view that there is a moderately high likelihood of extraordinary government support in case of need. In view of the restrictions imposed by the terms of the bank's wholesale banking licence in relation to dealings with Bahrain residents, the bank's lending exposure to Bahrain is not material. Because of this, and coupled with the bank's ownership by the Saudi authorities, we believe that the impact of the current situation in Bahrain on the financial profile of the bank will be limited.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

• Use Of CreditWatch And Outlooks, Sept. 14, 2009

• Bank Rating Analysis Methodology Profile, March 18, 2004

• Sovereign Risk for Financial Institutions, Feb. 16, 2004

• Tunisia's Jasmine Revolution Is Adding To Political And Fiscal Risks In The MENA Region, Jan. 27, 2011

• Kingdom of Bahrain Ratings Lowered By One Notch To 'A-/A-2' On Heightened Political Risk; On CreditWatch Negative, Feb. 21, 2011

• Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

RATINGS LIST

CreditWatch/Outlook Action

To From

Ahli United Bank B.S.C.

Counterparty credit ratings A-/Watch Neg/A-2 A-/Stable/A-2

BMI Bank B.S.C.

Counterparty credit ratings BBB-/Watch Neg/A-3 BBB-/Negative/A-3

Ratings Affirmed

Gulf International Bank B.S.C.

Counterparty credit rating BBB+/Stable/A-2

N.B.--This does not include all ratings affected.

-Ends-

Standard & Poor's, a subsidiary of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With offices in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com

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© Press Release 2011