Bahrain’s Sovereign Rating Downgrade Has Minimal Impact on Bank ABC

Bank ABC, headquartered in Bahrain and one of MENA’s leading international banks has announced that the technical rating action due to Fitch Ratings’ downgrade of Bahrain's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B+' from 'BB-',  will not lead to imminent pressure on the Bank’s funding or pricing, due to its resilient balance sheet position and consistent growth strategy. 

Bank ABC was previously rated by Fitch at BBB-, recognised to be an international wholesale bank, but noted to be at Fitch’s maximum limit of three notches above the sovereign rating. The downgrade of Bahrain by one notch to B+ has therefore created a technical move of ABC’s rating lower to BB+, maintaining a three-notch technical limit uplift to sovereign rating. However, Fitch has reaffirmed the resilience of Bank ABC. Such reaffirmation resonates with other rating agencies such as Standard & Poor (S&P) and Capital Intelligence (CI), which are not bound by these technical limits. Indeed, both CI and S&P reaffirmed the investment grade ratings in May/June 2020, recognising the Bank’s financial strength and resilience and its ability to withstand the extremely challenging conditions in its key markets.

S&P further underscored that the BBB- stable outlook reflects its view of the Bank’s strong financial profile and its strong capitalisation. S&P added that, although lower oil prices and the coronavirus pandemic will test Bank ABC's asset quality, the Bank's track record of prudent underwriting standards and strong capitalisation would support its creditworthiness. Also, CI restored the rating Outlook to Stable with a BBB+ rating as recently as September 1, 2020.

“Our underlying business and balance sheet remains strong, with the latter being further bolstered by the retention of the 2019 dividend.  On Basel III basis, H1 2020 CET1 was 16.0%, LCR 215% and NSFR 121%. All of the Bank’s stakeholders can continue to place great confidence in ABC’s strength, strategy and asset quality, recognised to be investment grade, but for this technical factor which we all hope will only be temporary” says Dr Khaled Kawan, Group CEO Bank ABC.