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Announcement:

Moody's places three Bahraini retail banks on review for possible downgrade

Global Credit Research - 24 Feb 2011

Actions follow Moody's decision to review the rating of the Bahraini government

Limassol, February 24, 2011 -- Moody's Investors Service has today placed on review for possible downgrade the deposit ratings and standalone bank financial strength ratings (BFSRs) of three Bahraini retail banks:

- National Bank of Bahrain B.S.C. (NBB): A3 long-term local and foreign-currency deposit ratings and C- BFSR.

- BMI Bank B.S.C. (BMI): Baa3/Prime-3 local and foreign-currency deposit ratings and D BFSR.

- BBK B.S.C. (BBK): A3 long-term local and foreign-currency deposit ratings and C- BFSR.

Additionally, Moody's has also placed the following ratings of BBK-issued debt on review for possible downgrade:

- The (P)A3 senior and (P)Baa1 subordinated ratings of BBK's USD2,000 million euro-denominated medium-term note programme.

- The A3 rating of BBK's USD500 million 4.5% euro-denominated medium-term notes, due 2015.

- The Baa1 rating of BBK's USD275 million floating-rate subordinated euro-denominated medium-term notes, due 2017.

- The (P)A3 rating of BBK's USD1,000 million euro-denominated deposit-note programme.

- The A3 rating on BBK's USD500 million euro-denominated deposit notes, due 2011

RATINGS RATIONALE

Moody's decision to place the ratings of NBB, BBK and BMI on review for possible downgrade follows a similar action taken by the rating agency on 23 February, when it placed the sovereign rating of the Bahraini government on review for possible downgrade. Given that all three banks' deposit ratings benefit from rating uplift due to Moody's assumptions of systemic support, a possible downgrade of the Bahraini government rating would likely reduce the level of systemic uplift for the banks' ratings. This is because the government rating is a key consideration in Moody's assessment of a country's capacity to support its banking system, in case of need.

"Today's rating actions are also driven by the possibility of increased medium-term levels of economic stress in Bahrain, following the outbreak of serious anti-government protests in the country and the potential credit-negative impact that this could have on the banks' standalone financial strength," explains George Chrysaphinis, a Moody's Vice President and lead analyst for the three Bahraini banks. "Moody's is concerned about the impact of possible economic disruptions on asset quality, particularly as these could negatively affect the banks' large real-estate exposures. The review also acknowledges the likelihood of increased liquidity pressures in the event of a significant escalation in the nature of the current political protests," adds Mr Chrysaphinis.

Moody's review process is expected to be concluded within three months, in line with the review period for the conclusion of the sovereign rating review. During this period, Moody's will assess the extent of possible deterioration in economic conditions within Bahrain, together with the resilience of the banks' franchise and financial performance. Moody's will also re-assess the capacity of the Bahraini authorities to provide systemic support to the banking sector, which could lead to a downward adjustment in the systemic support indicator (SSI) for the country, currently at A2 (one notch above the government rating). Any such adjustment could have an additional impact on the banks' deposit ratings.

Separately, on 31 January 2011, a fourth Bahraini retail bank rated by Moody's, Bahrain Islamic Bank (BIsB), was placed on review for possible downgrade. BIsB's issuer rating and BFSR were downgraded to Baa2/Prime-3/D, from Baa1/Prime-2/D+, respectively, and kept on review for possible downgrade. Those rating actions were taken due to bank-specific factors. The review process on BIsB will focus on these factors, but also on the systemic issues affecting the other Bahraini retail banks.

PREVIOUS RATING ACTIONS AND METHODOLOGIES

Moody's previous rating action on all three banks was implemented on 25 August 2010, when the rating agency downgraded NBB's ratings by one notch to A3/P-2 and affirmed the ratings of BBK and BMI.

The principal methodologies used in rating these banks were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), both of which are available on www.moodys.com. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found on Moody's website.

ABOUT THE THREE BANKS

Headquartered in Manama, NBB reported total assets of BD2.27 billion (USD6.04 billion) as at December 2010. NBB is one of the three largest banks in Bahrain with market shares in various businesses of 15%-25%. NBB is 49% owned by Mumtalakat, the holding company managing the Bahraini government's participations and investments. NBB currently benefits from one notch of systemic support uplift.

Headquartered in Manama, BBK reported total assets of BHD2.45 billion (USD6.47 billion) as at December 2010. BBK is one of three large retail banks in Bahrain and maintains market shares of 15%-25% in various businesses, with a strong emphasis on credit card business. Its ownership structure includes Bahraini and Kuwaiti government-related institutions and it currently benefits from two notches of systemic support uplift.

Headquartered in Manama, BMI reported total assets of BHD590.5 million (USD1,559.7 million) as at December 2010. BMI is one of the smaller Bahraini retail banks with market shares of loans and deposits of approximately 5% and 3%, respectively. It is majority-owned by Bank Muscat of Oman and by the Omani royal family. BMI currently benefits from one notch of parental support uplift and one notch of systemic support uplift.

Limassol
George Chrysaphinis
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places three Bahraini retail banks on review for possible downgrade
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