Moody's Investors Service yesterday placed two Bahraini retail banks under review for possible downgrade, citing the need to reassess government support for the country's financial sector. The credit rating agency is reviewing the National Bank of Bahrain's long-term local currency rating of "A1" and Bank of Bahrain and Kuwait's (BBK) local and foreign currency ratings of "A2/Prime-1", as well as its "A2" senior and "A3" subordinated debt ratings.
The announcement came on the same day that Rasheed al Maraj, the Bahraini central bank governor, gave reassurances that there was little impact on the country's banking system from another two Bahrain-based banks owned by Saudi Arabia's troubled Saad Group and Ahmad Hamad Al Gosaibi and Brothers. "It became clear to us through the investigation we carried out during the past two months that there was a decline in the value of assets at the two banks compared to what is in the books, especially in terms of the loans and investment portfolios," Mr al Maraj said.
Moody's said its actions were not driven by any reassessment of the stand-alone financial strength of the banks. However, it said it expected the asset quality of Bahraini banks to deteriorate over the next few months as a result of falling asset prices and more challenging economic conditions across the region. The ratings agency also plans to reassess the level of systemic support for Bahraini banks to determine whether the backing they receive needs to be more closely aligned to the government's local currency bond rating.
The size of the banking system in relation to the Bahraini government resources, the level of stress in the banking system and the foreign currency obligations of the banking system relative to the government's own foreign exchange resources would be among the factors it would consider in its reassessment, Moody's said. The agency said it recognised that Bahraini banks maintained strong capital levels and adequate profitability that could absorb growing loan losses and sustain their overall financial strength.
Meanwhile, Mr al Maraj appeared on Al Arabiya television network to put investors at ease on the state of the kingdom's banking sector. "I want to make clear ? that the damages resulting from [the Saad Group's Awal Bank and The International Banking Corporation, owned by Al Gosaibi] are very limited and there is not systemic risk on the banking sector in Bahrain," he said." Bahrain's central bank last week seized control of the two lenders, citing a substantial shortfall in their assets compared with their liabilities. Saad and Al Gosaibi were hit by financial difficulties in May, leading to uncertainty about the billions of dollars of debt owed to regional and international banks.