By Massoud Derhally
Fitch Ratings, the international rating agency, downgraded last week Gulf International Bank UK (GIBUK’s) short-term rating to ‘F2’ from ‘F1’ and Individual rating to ‘C/D’ from ‘B/C’.
Fitch Ratings, the international rating agency, downgraded last week Gulf International Bank UK (GIBUK’s) short-term rating to ‘F2’ from ‘F1’ and Individual rating to ‘C/D’ from ‘B/C’. The downgrade, which brings the short-term rating in line with that of GIBUK’s parent, the Bahrain-based Gulf International Bank, reflects the vulnerability of GIBUK’s performance in the currently difficult market environment. It also takes into account the potential for asset quality problems, especially within the high-yield bond portfolio. The bank has a weak revenue structure, relying on income from proprietary trading and investment activities. Increased impairment provisions against investments, losses on the disposal of securities and a drying up of earnings from equity trading has led to large operating losses in 2001 and the first half of 2002. High-yield bonds make up a significant proportion of the bank’s assets, leaving it exposed to any further deterioration in the credit environment.GIBUK is becoming more closely integrated with its parent and this, according to the rating agency, should create benefits in terms of cost synergies and access to a wider client base. Efforts are being made to improve the quality of earnings by generating more customer-driven fee income, particularly from fund management. However, according to Fitch, progress has been hampered by weak market conditions. Capitalisation and liquidity remain sound and market risks are well controlled. The UK’s Financial Services Authority (FSA) regulates GIBUK. The shareholders of GIBUK include the six Gulf Cooperation Council (GCC) governments and the Saudi Arabian Monetary Agency. Formerly named Saudi International Bank, GIBUK is a result of the merger with Gulf International Bank in 1999.