Complex Made Simple

Gulf International Bank’s Foreign Currency rating raised

Capital Intelligence (CI), the international credit rating agency, announced that it has raised Gulf International Bank (GIB)’s Long-Term Foreign Currency Rating (FCR) to ‘A+’ from ‘A’ on the grounds of its exceptionally strong and supportive shareholder the Saudi government-owned ‘Public Investment Fund’ (Kingdom of Saudi Arabia rating ‘AA-).

The Long-Term FCR is also underpinned by the fact that a majority of GIB’s risk assets and funding sources are derived from outside of Bahrain (namely Saudi Arabia, Qatar, UAE and Western Europe). The Bank’s Short-Term FCR is affirmed at ‘A1’. Support from the ‘Public Investment Fund’ is very likely assured over the foreseeable future and accordingly CI affirms the Support Level at ‘1’. GIB’s Financial Strength Rating (FSR) of ‘BBB+’ is maintained, reflecting its solid capital adequacy, strong liquidity and growing customer deposit base, and sound asset quality. The FSR is constrained by ongoing modest profitability at both operating and net levels, concentration risks although these are improving, as well as the execution risk associated with the launch of retail banking in Saudi Arabia. The Outlook for all the Ratings is ‘Stable’.

GIB’s total assets expanded further in the year under review, after the Bank had significantly deleveraged its balance sheet in response to the financial setback post Lehman. The strategic initiative to ‘de-risk’ the balance sheet has noticeably strengthened the Bank’s liquidity and significantly improved its funding profile. Following changes in the global operating environment for wholesale banks, GIB modified its business model to transform itself into a pan-GCC universal bank. While the business focus will remain on wholesale banking, the new strategy leverages GIB’s strategic Saudi government ownership to launch retail banking in the large and protected Saudi market. Notwithstanding the execution risk associated with the new venture, the imminent launch of retail banking is expected to bring diversification benefits to the Bank’s risk assets, funding sources and revenue streams over time.

GIB’s very solid capital ratios continue to provide a firm basis for the ongoing required investment in retail banking and a good buffer against eventualities. Although the downward trend in the capital adequacy ratio is projected to continue as risk assets expand further, it should remain at a sound level.

Additional capital support is expected to be forthcoming from the principal Saudi shareholder if necessary. Liquidity remained strong, reflecting measured credit expansion and sustained customer deposits growth.

The bulk of GIB’s liquidity was invested in very liquid short-term placements with prime banks and, to a lesser extent, high rated debt securities. Through sustained growth in customer deposits, the Bank’s sources of funding continued to diversify and as a result concentrations are improving.

Asset quality remained sound, notwithstanding a slight increase in non-performing loans, with loan-loss reserves continuing to provide more than full coverage. GIB’s profitability at both the operating and net levels, however, remained modest in part due to the large stock of liquid assets and the cost of term finance raised since the credit crisis to minimise the longer term asset and liability maturity mismatch. Profitability is projected to remain under some strain in the current year and into 2015 as a result of the start-up costs associated with the retail bank.

Established in 1975 by international treaty, GIB is primarily engaged in wholesale banking within the region, including investment banking and asset management. Its commercial and investment banking activities focus on the trade related and financial flows between the Gulf and the industrialized world.

Retail banking activities in the Kingdom of Saudi Arabia are expected to be launched soon. GIB operates a wholly-owned investment banking subsidiary in the UK, GIB UK, which was restructured during 2009. GIB’s total assets amounted to $21.16 billion at end 2013 while total capital was $2.26 billion.

Primary Analyst
Morris Helal
Senior Credit Analyst
Tel: +357 25 342300
E-mail: [email protected]

Secondary Analyst
Chris Nicolaou
Senior Credit Analyst
E-mail: [email protected]

Rating Committee Chairman
Rory Keela$
Senior Credit Analyst