MANAMA: The proposed takeover by National Bank of Bahrain (NBB) is credit positive for Bahrain Islamic Bank (BisB), according to credit ratings agency Moody’s.
The GDN reported on November 5 that the conventional lender had submitted a voluntary conditional offer to acquire up to 100 per cent of Bahrain Islamic Bank through a share swap or cash offer.
Analysing the deal based on the offer price disclosed by NBB, Moody’s feels its acquisition by NBB would be credit positive for the Sharia-compliant lender because it would give the bank access to NBB’s strong capitalisation, ample liquidity and a large customer base.
NBB is one of the largest retail banks in Bahrain, with around a 12pc market share by total system assets, and is largely owned by the government – 55pc through Mumtalakat and Social Insurance Organisation (SIO).
It is also the single largest shareholder in BisB with a 29pc stake (the government also indirectly owns a 29pc stake through SIO).
The ownership structure could potentially simplify the deal’s conclusion, although there are no guarantees that will be the case, said the credit ratings agency.
NBB’s strong capitalisation and healthy funding and liquidity support the bank’s standalone creditworthiness and can accommodate the acquisition: as of June 2019, NBB had a reported capital adequacy ratio (CAR) of 35.4pc and adjusted Tangible Common Equity to Risk Weighted Assets (TCE ratio) of 17.2pc (system TCE ratio of 12.8pc).
Additionally, NBB’s ratio of gross loans to deposits was 59.65pc as of June 2019, which indicates that its balance sheet is largely deposit funded and that there is ample liquidity to use in other investments, shows the assessment by Moody’s.
BisB’s strong growth rate – with 26pc loan growth between 2015 and 2018 – has negatively affected its capitalisation.
The bank’s reported CAR was 15.77pc as of June 2019. BisB would benefit from NBB’s strong capital to support future loan growth.
The Islamic lender’s ratio of gross loans to deposits is also higher than NBB’s at 106.6pc and BisB would benefit from access to NBB’s client base for funding to reduce its reliance on price-sensitive market funding, which accounted for 30pc of its funding as of June 2019.
Moody’s says although an acquisition of BisB would reduce NBB’s capitalisation, the transaction will still benefit NBB by providing access to customers interested in Sharia-compliant products at a time when demand for Islamic financial services is rising in GCC countries.
Islamic finance penetration of systemwide loans are as high as 77pc for Saudi Arabia and 70pc for Bahrain.
The agency expects demand from both corporate and retail clients for Islamic finance to increase and NBB’s takeover of BisB would position NBB to take advantage of this.
In addition to the potential operational efficiencies between the two entities, there is scope for significant synergies on the revenue side, although it is too early to quantify them, said Moody’s.
avinash@gdn.com.bh
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