Moody’s assigns ratings to Bahrain Islamic Bank

Credit ratings agency, Moody's, assigns ratings to an Islamic bank in Bahrain for first time.  
By Martin Morris
Tue 10 Feb 2009 10:35 PM

Credit ratings agency, Moody's Investors Service, has assigned Baa1 long-term and Prime-2 short-term local and foreign currency issuer ratings and a D+ bank financial strength rating (BFSR) to Bahrain Islamic Bank. (BisB).

The rating outlook is stable. This is the first time Moody's has assigned ratings to an Islamic bank in Bahrain.

"Moody's ratings for BisB recognise the rapid catch-up process the bank underwent from 2004 to 2007, recording a high compounded annual growth rate (CAGR) in assets of 37%.

“BisB had previously leveraged its strong brand and sound reputation to only a limited degree, but during the last two years it implemented major organisational changes and a committed hiring programme that resulted in senior, experienced officers joining the bank in recent years," explained Anouar Hassoune, lead analyst at Moody's for BisB.

In 2005, Kuwait-based The Investment Dar (TID) acquired 40% of the bank's shares. Given the current uncertainty with regard to whether TID will remain BisB's reference shareholder, Moody's ratings for the bank do not factor any support from its Kuwaiti parent.

Moody's says that more recently, BisB has positioned itself with a new brand identity and unveiled its new logo, while simultaneously increasing its capital through a rights issue to existing shareholders, which brought 84.9 million Bahraini dinars (222 million dollars) of fresh capital.

By year-end 2007, BisB's equity base had more than doubled from end-2006.

The D+ BFSR - which maps to a baseline credit assessment of Ba1 under Moody's Joint Default Analysis methodology - reflects BisB's growing franchise as Bahrain's leading Islamic commercial bank, strong financial metrics across the board, good asset quality, strong capitalisation and ample liquidity.

The rating is, however, constrained by single-name, sector, business and geographic concentration risks, rapid credit growth in the recent past and the foreseeable future, some degree of investment risks, as well as a still imbalanced funding continuum heavily reliant on short-term customer deposits, which gives rise to both maturity mismatches and displaced commercial risks.

The BFSR is also constrained by the bank's very recent turnaround as a more dynamic institution, its small absolute size, and its lack of diversification, which should be viewed in the context of the still developing nature of the bank's enterprise risk management architecture.

The outlook on all of BisB's ratings is currently stable. An upgrade of the bank's BFSR and/or issuer rating is possible in the event of significant asset and business expansion that leads to further operating diversification, improvements in the granularity of the financing and investment portfolios, and a further strengthening of the bank's franchise.

Bahrain Islamic Bank reported total assets of 874 million Bahraini dinars (2.3 billion dollars) at December 31 2008.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.