By Andy Sambidge
Ratings agency says bank's credit measures have deteriorated, earning assets declined sharply
Standard & Poor's said on Tuesday that it has downgraded its long- and short-term counterparty credit ratings on Bahrain-based BMI Bank and assigned a negative outlook.
The rating agency said the downgrade reflected its view that BMI's credit measures "have continued to deteriorate beyond our earlier expectations".
S&P added that in an adverse operating environment, the bank's earning assets had "declined sharply" while operating expenses continued to grow, undermining its core earnings capacity.
Bahrain has been in the grips of a major political uprising and martial law was declared in March.
Operating income before provisions was slightly above breakeven in 2010 and should enter loss territory in 2011, S&P added.
"Increasing funding costs and adverse operating conditions in Bahrain are hindering management's efforts for a financial turnaround," the agency said.
"The bank's large proportion of construction and real estate loans, plus its high single-party loan concentration, increases the challenges management faces," S&P said, adding that it could lower the long-term rating within the next 12 months if BMI Bank fails to reverse the current negative trend in operating performance.
"However, we expect the bank's preprovision operating income to reach a low point in the first half of 2011 before gradually recovering in the following quarters," the S&P report said.