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Rating Action:

Moody's takes rating actions on four Bahraini retail banks, concluding their review

16 May 2016

Bank rating actions follow downgrade of the Bahrain Government rating

Limassol, May 16, 2016 -- Moody's Investors Service ("Moody's") has today concluded its review for downgrade on the ratings of four Bahraini banks initiated on 7 March 2016. Moody's has downgraded to Ba2 , from Ba1 , the long-term local currency ratings of BBK B.S.C., National Bank of Bahrain BSC and Bahrain Development Bank B.S.C. All ratings carry a negative outlook.

The actions on the Bahraini banks reflect the weakening financial strength of the sovereign, as indicated by Moody's downgrade of Bahrain's government issuer rating to Ba2 negative from Ba1 Ratings under Review, on 14 May 2016, which concluded the review for downgrade of the sovereign rating that was initiated on 04 March 2016. The sovereign action reflects the ongoing negative impact of lower oil prices on Bahrain's fiscal position and economic strength (please see "Moody's downgrades Bahrain's government issuer rating to Ba2 with negative outlook, concluding review for downgrade", https://www.moodys.com/research/--PR_348700).

Moody's decision to downgrade BBK's and National Bank of Bahrain's ratings reflects the close linkage of the banks' credit profile to the weakening fiscal position of the government, primarily through their high and increasing direct holdings of Bahraini government securities. Moody's decision to downgrade Bahrain Development Bank's ratings primarily reflects the reduced fiscal capacity of the government to provide support to the bank in times of stress, if needed.

In addition to these actions, Moody's confirmed the Ba2(cr) Counterparty Risk Assessment (CR Assessment) of Bahrain Islamic Bank, reflecting the expected resilience of the bank's CR Assessment.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189942 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

BBK AND NATIONAL BANK OF BAHRAIN: CREDIT PROFILE LINKED TO THE SOVEREIGN'S CREDITWORTHINESS, AMID HIGH DIRECT GOVERNMENT EXPOSURES

Today's downgrade of BBK's and National Bank of Bahrain's long-term local currency deposit ratings and BBK's long-term senior unsecured debt ratings to Ba2 negative from Ba1 Ratings under Review reflects the close linkage of the banks' own credit profile to the weakening fiscal position of the government. Accordingly, the banks' baseline credit assessments (BCAs) have been downgraded to ba2, from ba1, and are now capped by the Ba2 rating of the government, primarily to capture the banks' high and increasing exposures to the Bahraini government through their direct holdings of government securities at over 2x the banks' tangible common equity (TCE).

Despite our assessment of a very high probability of government support from Bahrain, the ratings of these banks do not benefit from any rating uplift from their ba2 BCAs, due to the limited capacity of the government to provide support above that level.

The banks' long-term foreign currency deposit ratings have been downgraded to Ba3, from Ba2, as they are constrained by Bahrain's lower Ba3 country ceiling for such foreign currency deposits, which captures foreign currency transfer and convertibility risks.

The CR Assessments of these banks have been downgraded to Ba1(cr)/Not-Prime(cr), from Baa3(cr)/Prime-3(cr). The CR Assessments are positioned one notch above the BCA of ba2, reflecting our view that the probability of default on the banks' senior obligations is lower than that of deposits. We believe senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

BAHRAIN DEVELOPMENT BANK: REDUCED BAHRAIN GOVERNMENT SUPPORT

The primary driver for the downgrade of Bahrain Development Bank's ratings is the reduced capacity of the government to provide support to the bank in the event of need, as the downgrade of the sovereign ratings implies a weakening in the financial strength of the Bahraini authorities.

A secondary driver for the downgrade is Moody's expected impact of the weakening operating environment on the bank's asset quality and profitability metrics. Bahrain Development Bank faces more elevated credit risks, compared to other commercial banks, due to its lending focus on small and midsized enterprises, and start-ups.

The long-term CR Assessment of Bahrain Development Bank has been downgraded to Ba2(cr) from Ba1(cr). The CR Assessment is positioned one notch above the bank's ba3 BCA.

BAHRAIN ISLAMIC BANK

In addition to these actions, Moody's also confirmed the Ba2(cr) Long-term CR Assessment of Bahrain Islamic Bank, which had been placed under review for downgrade in case of a worse-than expected weakening of the government's credit profile. However, with Bahrain's government issuer rating at Ba2, the bank's CR assessment remains unchanged.

The CR Assessment is positioned one notch above the issuer ratings of Ba3, reflecting our view that the probability of default on these counterparty obligations is lower than that of senior unsecured debt. We believe senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

RATINGS OUTLOOK

Moody's has assigned a negative outlook to National Bank of Bahrain, BBK and Bahrain Development Bank, in line with the negative outlook on the government's ratings. The negative outlook signals the risk of a further weakening in Bahrain's credit profile, which could in turn affect the banks' own credit profile and/or weaken the government's capacity to provide support to banks in times of stress, if needed.

WHAT COULD CHANGE THE RATINGS -- UP/DOWN

Given the negative outlook on these banks' ratings, there is currently no upwards rating pressure. The negative outlook could be changed to stable on evidence of economic and fiscal resilience in Bahrain, but will need to be preceded by a change in the Bahraini sovereign outlook to stable.

A downgrade of the Bahraini government's issuer rating would weigh on the banks' own ratings as it will signal a further deterioration in the banks' own credit profile and/or weakening in the government's capacity to provide support to banks in times of stress.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189942 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Methodologies used

• Local Market Analyst

PRINCIPAL METHODOLOGIES

The principal methodology used in rating Bahrain Islamic Bank, National Bank of Bahrain BSC and BBK B.S.C. was Banks published in January 2016. The principal methodologies used in rating Bahrain Development Bank B.S.C. were Government-Related Issuers published in October 2014, and Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

The local market analyst for Bahrain Islamic Bank ratings is Nitish Bhojnagarwala, AVP-Analyst, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189942 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Releasing Office

• Person Approving the Credit Rating

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis National Bank of Bahrain BSC or their agents are considered to be participating entities. These rated entities or their agents generally provide Moody's with information for their ratings process.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christos Theofilou, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Sean Marion
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's takes rating actions on four Bahraini retail banks, concluding their review
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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