RAM Ratings has reaffirmed the AA1/Stable/P1 financial institution ratings of Gulf International Bank BSC (GIB or the Bank), as well as the AA1(s)/Stable rating of the proposed up to RM3.5 billion Sukuk Wakalah MTN Programme of Gulf Sukuk I Company BSC (C).

Published on 15 October 2014

RAM Ratings has reaffirmed the AA1/Stable/P1 financial institution ratings of Gulf International Bank BSC (GIB or the Bank), as well as the AA1(s)/Stable rating of the proposed up to RM3.5 billion Sukuk Wakalah MTN Programme of Gulf Sukuk I Company BSC (C). Gulf Sukuk is the funding conduit for GIB; the issue rating reflects the Bank’s credit strength given its obligations under a purchase undertaking.

As long as the government of Saudi Arabia maintains its controlling stake in the Bank, GIB is expected to receive ready support from the former, if needed. Such backing has been demonstrated via capital injections as well as the acquisition of the Bank’s illiquid investments amid the global financial crisis in 2008. Based in Bahrain, GIB enjoys a strong wholesale-banking franchise in the Gulf Cooperation Council (GCC) region. It has built close relationships with Saudi businesses and government agencies, since its establishment to develop industries in the GCC countries.

GIB’s asset quality has been improving. Thanks to a decline in its impaired loan base, the Bank’s adjusted gross impaired-loan ratio had eased to 5.8% as at end-December 2013 (end-December 2012: 10.8%). Its impairment provisions are also expected to stay benign. Due to thin margins, GIB’s profitability has been weak; this is unlikely to improve in the near term given the investment needs for the Bank’s retail business, which is planned to be launched in the second half of 2014. Over time, the Bank’s continued shift from project-finance loans into lending to mid-sized corporates is likely to somewhat weaken its credit profile, albeit compensated by broader net interest margins.

GIB still faces a significant degree of depositor-concentration risk, although mainly from public-sector depositors, which have proven a steady source of deposits. Moreover, the Bank enjoys ample liquidity, which partially mitigates its depositor-concentration risk. As at end-June 2014, GIB’s capitalisation remained robust, with a total capital ratio of 19.3%.

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Peter Kong

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peterkong@ram.com.my