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Tue 27 Jan 2009 10:15 AM

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S&P cuts outlook for GFH to negative

Ratings agency affirms BBB-/A-3 long and short-term counterparty ratings for the Islamic investment bank.

Standard & Poor’s (S&P) has lowered its outlook on Bahrain’s Gulf Finance House (GFH) to negative from stable, citing the company’s high leverage and a deteriorating operating environment in 2009.

“The outlook revision reflects the increasingly difficult environment in which the bank operates, which is likely to limit its capacity to execute new transactions and therefore lead to a weaker financial performance,” analyst Emmanuel Volland said.

S&P affirmed the BBB-/A-3 longand short-term counterparty credit ratings on the Islamic investment bank.

The deteriorating environment will limit investment placements and exits this year, putting pressure on the value of GFH's own investments and financial performance

The ratings agency said it would lower the ratings if the bank’s leverage increases, or if it is not able to consolidate its liquidity profile and achieve “adequate profitability”.

The outlook could be revised back to stable if there is an improvement in investment leverage metrics and the bank remains profitable.

On a positive note, Volland said the nature of GFH’s assets means that they are less subject to marked-to-market deterioration than those of the company’s peers.

The current rating reflects its good financial performance, low and flexible cost base, adequate liquidity position, and satisfactory capitalization, he added.

Still, S&P said there is very limited potential for an upgrade in the foreseeable future, as that would require a significant improvement in the bank's leverage, recurring income stream, and liquidity.

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