Fitch affirms BMB Investment Bank at 'B-'; revises outlook to positive from stable

BMB's other ratings are affirmed at Short-term IDR 'B', Individual 'D/E', Support '5' and Support Rating Floor 'No Floor'.

The Positive Outlook reflects BMB's full prepayment of its medium-term syndicated loan facility in February 2008 and the positive impact that this should have on its prospects, as well as $75m additional capital from a rights issue expected in Q408 which should support capitalisation at adequate levels.

The ratings also reflect BMB's modest franchise and capital base, and its high market risk exposure from private equity investments.

In Q402, BMB was unable to roll over a USD75m syndicated loan due to adverse market conditions, regional political risk, and concerns about its prospects.

It signed an agreement with its creditors in Q404 and fully prepaid the final $28.5m instalment of this loan in February 2008.

The prepayment means the loan's restrictive covenants have been lifted; this should have a positive impact on BMB's prospects and it aims to cautiously expand activities.

Profitability has improved but remains reliant on investments in private equity funds, which contributed nearly all of its $23.6m operating income in 2007.

This results in earnings volatility and performance is considerably exposed to market risk. Its investment portfolio mainly contains well- diversified private equity funds (end-H108: $67m).

Liquidity is weak as most of the bank's private equity investments are not readily realisable and funding sources remain limited.

Capitalisation has improved following increased earnings but the capital base remains small.

Basel II negatively affected capital ratios in Q108 but $75m additional capital from a rights issue expected in Q408 should support capital at adequate levels.

The Fitch eligible capital ratio was 26% at end-H108.

BMB invests in private equity funds on its own behalf and also offers its Middle East-based high net worth and institutional clients private equity fund investments and some investment-banking activities.

Following a Q305 capital increase, Al-Fawares Holding, a Kuwaiti conglomerate, is BMB's 65% shareholder.

BMB's shares are listed on the Bahrain Stock Exchange.