Bahrain Islamic Bank cut to junk at Moody's on loss, unrest

Sharia-compliant lender's financial 'metrics are unlikely to improve this year and next', ratings agency says

ISLAMIC BANK: Bahrain Islamic Bank had its credit ratings cut to junk at Moody’s Investors Service (Image for illustrative purposes only)

ISLAMIC BANK: Bahrain Islamic Bank had its credit ratings cut to junk at Moody’s Investors Service (Image for illustrative purposes only)

Bahrain Islamic Bank had its credit ratings cut to junk at Moody’s Investors Service because of losses and after political unrest in the Arabian Gulf nation.

The Sharia-compliant lender’s long- and short-term ratings were lowered two levels to Ba1/Non-Prime, the highest non- investment grade, from Baa2/Prime-3, the rating agency said in an e-mailed statement today. The ratings will remain on review for further possible cut.

The decision "reflects a material weakening in the institution’s stand-alone financial profile, as shown in the significant losses it posted in the last two years and the erosion of its capital base in the absence of new capital injections," Moody’s said. The bank’s loss widened to BD39.7m ($105m) in 2010 from BD19.4m in the previous year.

Bahrain’s credit rating was cut one level at Moody’s with a negative outlook on May 26, citing the impact of political turmoil on economic growth and banking industry. The rating agency on May 30 lowered National Bank of Bahrain, BMI Bank and BBK, with negative outlook.

The island-kingdom witnessed anti-government protests in February and March, inspired by revolts that toppled the leaders of Egypt and Tunisia. The protests prompted members of the Gulf Cooperation Council to send a military force to help restore order and forced the country to impose a state of emergency, which ended today.

Bahrain Islamic Bank’s financial "metrics are unlikely to improve this year and next," Moody’s said. "The sharp deterioration of the bank’s asset quality since 2008 is at the core of Bahrain Islamic Bank’s financial problem."

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