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Moody's Investors Service has downgraded to Baa3/Prime-3 from Baa2/Prime-2 the deposit, issuer and senior unsecured debt ratings of three Bahraini Banks: BBK B.S.C., National Bank of Bahrain BSC, and Bahrain Development Bank B.S.C. Concurrently, Moody's downgraded the baseline credit assessments (BCAs) of BBK and National Bank of Bahrain to ba1 from baa3.
These actions follow Moody's downgrade of Bahrain's government bond ratings to Baa3 from Baa2 on April 16 and reflect the government's reduced capacity to support banks in case of need, and the challenges these banks face in view of weaker economic growth in Bahrain.
Moody's has also affirmed Bahrain Islamic Bank's Ba3/Not Prime issuer ratings, reflecting Moody's view that at these lower levels, the bank's issuer ratings already capture the government's weakened capacity to provide government support.
Additionally, the rating agency has withdrawn the outlook on BBK's subordinated debt rating.
All long-term deposit, issuer, and senior unsecured debt ratings for the four Bahraini banks carry negative outlooks, aligned with the negative outlook on Bahrain's Baa3 rating. The negative outlooks signal the risk of a further potential reduction in authorities' capacity to support the banking system.
Moody’s said upward pressure on the ratings and outlooks of BBK, National Bank of Bahrain and Bahrain Development Bank could develop following improvements in the operating conditions leading to a stabilisation of the outlook on the sovereign rating and/or a sovereign upgrade. Positive pressure on Bahrain Islamic Bank's ratings could develop as a result of a substantial capital injection and improvements in asset quality and/or profitability.
Conversely, a downgrade of the government debt rating would put downward pressure on the long-term ratings of the four banks. The standalone BCAs of BBK, National Bank of Bahrain and Bahrain Development Bank would be pressured by a greater-than-expected weakening in the banks' asset quality, profitability, and capital adequacy. For Bahrain Islamic Bank, negative pressure on its BCA could develop as a result of significant and sustained deposit outflows and/or a weakening of its liquidity position.
