x Abu Dhabi, UAESunday 21 January 2018

Bahrain lender faces concerns

Bahrain's BMB Investment Bank is battling to reassure investors after it was put on watch for potential downgrade by Fitch Ratings, after it lost millions of dollars to unauthorised trading by former senior managers.

Bahrain's BMB Investment Bank is battling to reassure investors after it was put on watch for potential downgrade by Fitch Ratings, following millions of dollars of losses from unauthorised trading.

BMB said this week that while the outlook had been lowered, the rating itself was unchanged. The bank is currently rated B- by Fitch, its second lowest rating. In a statement this week Fitch said the "most likely directional change" would be a downgrade.

BMB swung to a loss of US$6 million for the first quarter of the year, compared with profit of $1.6m during the corresponding period the year earlier, after discovering "certain potential irregularities" within the bank at the end of March involving senior members of the bank's management team, who have now been fired. BMB has referred the matter to its lawyers with instructions to immediately begin proceedings against them, it said last week. An investigation had revealed unauthorised transactions during 2011, 2012 and the first quarter of this year. The bank had recovered all misappropriated funds, but unearthed hidden losses in the process. Fitch's negative outlook "reflects the increased legal and reputational risks to BMB, as well as the possibility of further losses stemming from these activities", the ratings agency said in a statement.

"Over the coming weeks, Fitch will aim to assess the potential for further losses materialising as well as to establish if recent events have had a negative reputational effect on the bank's franchise and funding profile."

BMB said in its statement that Fitch has no inside knowledge of its operations and made its recommendations based on the bank's published statements.

"Our CEO was approached by Fitch prior to the publication of the rating report and agreed to speak with Fitch once again following publication of BMB Q2 results," the bank said. "At that time both Fitch and, more importantly, the BMB stakeholders will have a more detailed picture of the current and underlying financial and trading position of BMB."

BMB is 64.5 per cent owned by Al Fawares Holding, a Kuwaiti conglomerate. It is the latest in a string of troubles for Bahrain's banking sector, which has faced a rocky time since the global financial crisis.

The investment firm Arcapita emerged from Chapter 11 proceedings last week after a US court approved its plan to repay creditors, thought to be the first ever bankruptcy compliant with Sharia law.

Investcorp has embarked on a series of acquisitions and exits from successful investments, announcing on Tuesday it had taken a 38 per cent stake in Al Yusr Industrial Contracting Company, a Saudi oilfield services firm.

Meanwhile, Gulf Finance House last year acquired Leeds United, a British football club, following a series of debt restructurings.