IIRA reaffirms credit ratings of Bahrain Islamic Bank and assigns fiduciary score

IIRA has assigned BIsB a fiduciary score of 65-70, which indicates that 'rights of various fund providers are adequately defined and protected, although weaknesses have been noted in some areas.' The fiduciary score captures the role of the management of the institution as Mudarib, the entity's governance practices and compliance with Shariah principles adopted by the bank.

The bank continued consolidating its position in 2011, while making progress against its strategic focus on the retail sector. BIsB's access to retail funds remains strong, even as overall growth remains slow in the current year, and is evidence of customer loyalty and strong franchise in the local market. The incidence of impairment in the banking industry has remained high since 2008, with non-performing loans comprising one-third of BIsB's financing portfolio and emanating mostly from corporate clients and real estate exposures. Lending to retail clients comprises around 35% of the financing portfolio; on a relative basis, non-performance has been the lowest in the consumer portfolio and is a key area of future focus.

The bank has been posting losses since 2009. The year 2011 marked an improvement with a more than 50% reduction in losses over 2010. Aggregate return to Investment Accountholders from joint financings and investments, has trended down over the last five years, although it remains in line with customer expectations and market trends. Equity of US$ 56.1m was raised by the bank in 2011 through partial subscription of a 75% rights share issue. Capital Adequacy Ratio is currently adequate at 13.6%; however equity support may be required to balance risk profile and growth as planned over the next couple of years.

The bank has an eminent Shariah Board. The board meets frequently to ensure comprehensive review of general operations and pre-approval of new product and service types. The bank's Shariah infrastructure also includes a Shariah audit and compliance set up, and resolution of routine Shariah related matters. Reinforcement of the Shariah control function will ensure segregation of audit, compliance and routine Shariah guidance related functions, while also ensuring effective succession planning in the area. Also, inclusion of Shariah personnel in overall governance related planning and oversight will ensure greater entrenchment of Shariah precepts in the bank's day to day management.

There is significant attention to principles of good governance, with adequate independence at board level and strong board oversight through board committees. Greater participation of risk management function in finalization of credit decisions or application of enhanced stringency in risk limits may be required to ensure improvement in quality of fresh exposures undertaken by the bank.