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Bahrain-Based Gulf International Bank 'BBB+/A-2' Ratings Placed On CreditWatch Negative Following Sovereign Downgrade

On March 18, 2011, we lowered our ratings on the Kingdom of Bahrain to 'BBB/A-3' and kept them on CreditWatch with negative implications. Simultaneously, we lowered our transfer and convertibility (T&C) assessment on Bahrain to 'BBB' from 'A'.

We are placing our 'BBB+/A-2' ratings on Bahrain-based Gulf International Bank on CreditWatch negative.

The rating action on GIB reflects our view that the bank's financial profile--including its funding and liquidity--might deteriorate even though it is not directly exposed to Bahrain's sovereign credit risk and operating environment.
PARIS (Standard & Poor's) March 23, 2011--Standard & Poor's Ratings Services said today that it has placed its 'BBB+/A-2' long- and short-term counterparty credit ratings on Bahrain-based Gulf International Bank B.S.C. ( GIB ) on CreditWatch with negative implications.

The CreditWatch placement follows the downgrade of the Kingdom of Bahrain (BBB/Watch Neg/A-3) and takes into account our lowering of the T&C assessment on the sovereign to 'BBB' from 'A'. The ratings on Bahrain remain on CreditWatch negative.

"The rating action on GIB reflects our view that the bank's financial profile--mainly funding and liquidity--might deteriorate even though it is not directly exposed to Bahrain's sovereign credit risk and operating environment," said Standard & Poor's credit analyst Goeksenin Karagoez.

It also reflects our view that the current political uncertainty in the country might result in a potential waiver of its articles of association and suspension of its special status.

On a positive note, the bank has an adequate liquidity position with a large stock of liquid assets, and could benefit from liquidity support from its shareholder. On Feb. 28, 2011, GIB had US$9.2 billion in liquid assets including securities, comprising 54% of total assets versus 50% at year-end 2010. Regarding operational risk, we understand that GIB successfully operated through one of its disaster recovery centers at the height of the unrest in Bahrain.

The ratings on GIB reflect the bank's ownership structure, strong capitalization and efficiency, and satisfactory liquidity. Negative rating factors include the bank's weak profitability, reliance on short-term and concentrated wholesale funding, and challenges regarding the implementation of its revised strategy at a time when its operating environment is deteriorating rapidly.

The Public Investment Fund, owned by the Kingdom of Saudi Arabia (AA-/Stable/A-1+), owns a 97.2% stake in GIB . We therefore 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 shareholder but its role is of "limited importance" to it. The long-term rating on GIB is therefore two notches above its stand-alone credit profile (SACP) to reflect our view that there is a "moderately high" likelihood of extraordinary government support in case of need.

Standard & Poor's aims to resolve the CreditWatch status on the bank within the next three months. During this time, we expect the course of political events will become clearer.

"If the situation in Bahrain further deteriorates, leading to a downgrade of the sovereign to a level that weakens investor sentiment toward GIB , and subsequently affects its funding and liquidity, it could result in a downgrade of the bank," said Mr. Karagoez.

We believe that a material deterioration of sovereign creditworthiness could pose additional challenges for GIB 's business model, which we currently view as a rating constraint as the bank has been trying to reposition itself amid the less favorable environment.

The resolution of the CreditWatch will also depend on our updated assessment of the bank's SACP--especially its funding and liquidity--as well as of the likelihood of extraordinary support from the Saudi authorities in case of need.

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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
FI Criteria: Bank Rating Analysis Methodology Profile, March 18, 2004
Sovereign Risk for Financial Institutions, Feb. 16, 2004
Kingdom of Bahrain Ratings Lowered By One Notch To 'A-/A-2' On Heightened Political Risk; On CreditWatch Negative, Feb. 21, 2011
Ratings On Kingdom Of Bahrain Lowered Two Notches To 'BBB/A-3' On Worsening Political Situation; Watch Negative Remains, March 18, 2011
General Criteria: Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
Methodology: Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009

© Press Release 2011