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S&P puts Gulf International Bank on CreditWatch Negative.

Standard & Poor's Ratings Services (S&P) has placed its 'BBB+/A-2' long- and short-term counterparty credit ratings on Bahrain-based Gulf International Bank (GIB) on CreditWatch with negative implications. The CreditWatch placement follows the downgrade of the Kingdom of Bahrain (BBB/Watch Neg/A-3) and takes into account the lowering of the T&C assessment on the sovereign to 'BBB' from 'A'. The ratings on Bahrain remain on CreditWatch negative.

"The rating action on GIB reflects our view that the bank's financial profile--mainly funding and liquidity--might deteriorate even though it is not directly exposed to Bahrain's sovereign credit risk and operating environment," said Standard & Poor's credit analyst Goeksenin Karagoez.

It also reflects the view that the current political uncertainty in the country might result in a potential waiver of its articles of association and suspension of its special status.

On a positive note, the bank has an adequate liquidity position with a large stock of liquid assets, and could benefit from liquidity support from its shareholder. On 28 February 2011, GIB had $9.2 billion in liquid assets including securities, comprising 54 per cent of total assets versus 50 per cent at year-end 2010. Regarding operational risk, GIB successfully operated through one of its disaster recovery centers at the height of the unrest in Bahrain.

The ratings on GIB reflect the bank's ownership structure, strong capitalisation and efficiency, and satisfactory liquidity. Negative rating factors include the bank's weak profitability, reliance on short-term and concentrated wholesale funding, and challenges regarding the implementation of its revised strategy at a time when its operating environment is deteriorating rapidly.

The Public Investment Fund, owned by the Kingdom of Saudi Arabia (AA-/Stable/A-1+), owns a 97.2 per cent stake in GIB and S&P therefore classifies GIB as a government-related entity (GRE). In accordance with the agency's criteria for GREs, GIB is viewed as having a "very strong" link with its shareholder but its role is of "limited importance" to it. The long-term rating on GIB is therefore two notches above its stand-alone credit profile (SACP) to reflect the opinion that there is a "moderately high" likelihood of extraordinary government support in case of need.

"If the situation in Bahrain further deteriorates, leading to a downgrade of the sovereign to a level that weakens investor sentiment toward GIB, and subsequently affects its funding and liquidity, it could result in a downgrade of the bank," said Karagoez.

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Publication:CPI Financial
Geographic Code:7BAHR
Date:Mar 24, 2011
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