Fitch affirms National Bank of Bahrain at IDR 'A'; Outlook Stable

The IDRs and Support ratings of NBB reflect the extremely high probability of expected support from the Bahraini authorities, in case of need. This is based on the government of Bahrain's 49% ownership of NBB, and the Bahraini authorities' ability and strong propensity to maintain confidence in a relatively small banking system. The Outlook for NBB's Long-term IDR is Stable, reflecting the Stable Outlook on the sovereign rating of Bahrain. The Individual rating reflects its leading domestic franchise, stable profitability, strong asset quality and capitalisation, and low cost funding base. It also takes into account the bank's reliance on a relatively small and increasingly competitive domestic market.

Operating profit for H107 rose a healthy 22% yoy. This was driven by rising interest income as loan growth recovered after new regulations in 2005 had curbed growth in consumer finance. Cost efficiency improved in H107 as operating revenue growth outpaced growth in expenses. Asset quality is strong and there was no net loan impairment charge made in H107, 2006 or 2005. Impaired loans were a low 0.9% of gross loans at end-H107 and impairment reserves coverage was a comfortable 186%.

Liquidity is satisfactory and is supported by substantial interbank assets and marketable securities. Non-equity funding is mainly from customer deposits (end-H107: 80%); around one-third of the deposit base is from low-cost deposits, reflecting the bank's strong domestic franchise. Capitalisation has been maintained at strong levels; at end-H107 the Fitch eligible capital ratio was 20% and the capital adequacy ratio 26%.

NBB became the first locally registered bank in Bahrain in 1957. The Bahraini government acquired a 49% stake in 1973. The bank has a domestic network of 25 branches, 42 ATMs, a branch in Abu Dhabi, and will open a branch in Riyadh in Q407. It provides a broad range of wholesale and retail banking services. The bank has leading domestic market shares in loans and deposits.