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Moody's confirms Gulf International Bank A3/P-2/D+; outlook negative.

GIB's P-2 short-term rating is unaffected by the rating announcement. Moody's decision to confirm GIB's standalone and supported ratings reflects the view that GIB is making sufficient progress to restore its franchise strength and that effective steps have been taken to improve its risk positioning.

The re-orientation of GIB's regional wholesale lending business towards higher-yielding large and mid-corporate segments, away from less profitable project and syndicated finance, could achieve improved returns over the medium term.

GIB has taken parallel steps to strengthen its risk positioning by reducing leverage (size of the loan book relative to equity) to under 4x, from more than 6x in 2008. The bank has also strengthened its liquidity profile by increasing its proportion of medium-term funding and reducing the average maturity of its loan book.

GIB's Ba1 standalone rating remains constrained by modest profitability and high corporate loan and deposit concentrations, counterbalanced by strong capitalisation. The bank's moderate franchise strength is underpinned by its Saudi government ownership. This enables the bank to raise stable wholesale funding at a low cost, including longer-term sources, and has also yielded approval to expand the branch network in Saudi Arabia, with the bank planning to launch retail banking operations in 2012.

The bank's A3/Prime-2 foreign-currency deposit ratings incorporate four notches of parental support uplift, based on 97 per cent ownership by Saudi Arabia's Public Investment Fund and Saudi Arabia's strong track record of providing support to the bank.

The negative outlook on GIB's ratings reflects residual uncertainty about the trend in the bank's credit costs as it reduces its exposure to government-related project finance and expands its lending to medium-sized regional corporates. It also reflects short-to-medium-term risks to profitability should the bank fail to meet its revenue targets on the planned retail banking operation.

Moody's also confirmed the following debt ratings with a negative outlook:

The (P)A3 senior and (P)Baa1 subordinate ratings of GIB's $4,000 million Euro MTN programme

The Baa1 rating on GIB's $400 million Subordinated Floating Rate Euronotes, due 2015

The A3 rating on GIB's SAR3,500 million Floating Rate Bonds, due 2015, issued by the bank's Saudi branch

The A3 rating on GIB's SAR2,000 million Floating Rate Bonds, due 2015, issued by the bank's Saudi branch

Headquartered in Manama, Bahrain, Gulf International Bank reported total assets of $15.5 billion as at December 2010.

2011 CPI Financial. All rights reserved.

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Publication:CPI Financial
Date:Jul 14, 2011
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