January 10, 2014 / 4:36 AM / 4 years ago

Fitch Affirms Bahrain at 'BBB'; Outlook Stable

LONDON, January 09 (Fitch) Fitch Ratings has affirmed Bahrain's Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' and local currency IDR at 'BBB+'. The Outlooks are Stable. The issue ratings on Bahrain's senior unsecured foreign and local currency bonds have also been affirmed at 'BBB' and 'BBB+', respectively. The agency has simultaneously affirmed Bahrain's Country Ceiling at 'BBB+' and Short-term foreign currency IDR at 'F3'. KEY RATING DRIVERS The affirmation and Stable Outlook reflect the following factors: Bahrain's external position is stronger than its 'BBB' rated peers. A current account surplus of around 10% of GDP is estimated for 2013, which will be the 10th consecutive year of surplus. Bahrain's overall net creditor position, at almost 100% of GDP at end-2012, is the strongest of any similar-rated sovereign. GDP per capita and broader human development and business environment indicators are close to the 'A' median. The strong regulatory framework and local skill base, combined with low costs, are key supports to the financial sector. The political situation has stagnated and low level violence is on-going. Hopes of reconciliation have been derailed following clashes in August 2013 between security forces and protestors. The main opposition group Al Wefaq's subsequent political boycott of the reconciliation process has added to a polarised local climate. Fitch expects the political stalemate to continue. Parliamentary elections scheduled for October 2014 could trigger protests, leading to some additional flare-ups of violence, although Fitch does not expect a material deterioration in the security situation. Growth is steady and supported in the medium term by GCC funding. Real GDP is estimated to have risen by 4.9% in 2013, up from 3.4% in 2012, largely driven by the resumption of oil production after disruptions in 2012. In 2014 and 2015, as oil growth stabilises, non-oil growth will benefit from disbursement of the GCC project fund. A high estimated breakeven oil price (at USD122 per barrel for 2013), recurring budget deficits, and rising debt strain Bahrain's fiscal profile and expose it to fluctuations in oil prices. At 42.9% of GDP estimated for 2013, the general government debt-to-GDP ratio has tripled since 2008 and is above the 'BBB' range median. However, net debt is lower due to government deposits estimated by Fitch at above 20% of GDP. The banking sector is large, at 650% of GDP, but has weathered a number of global, regional and local shocks in recent years. The wholesale banking sector's assets (at around 350% of GDP) have stabilised after five years of decline. Consolidation is continuing in the small Islamic retail banking sector, where there have been some asset quality problems. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently balanced. The main factors that, individually or collectively, could lead to positive rating action are: - A broadly accepted political solution that eases political unrest. - An improvement in the government debt-to-GDP ratio, for example related to measures to contain the government wage bill and revise the subsidy system. - A prolonged period of significantly higher oil prices that improve the public finances. The main factors that individually, or collectively, could trigger negative rating action include: - Serious deterioration of the domestic security situation. - Failure to stabilise the government debt-to-GDP ratio at around the peer median. - A prolonged period of significantly lower oil prices. KEY ASSUMPTIONS Fitch forecasts that Brent crude will average USD100/b in 2014 and 2015 and that Bahraini export crude will continue to trade at a small discount to Brent. The disruption to the pipeline supplying oil from the Abu Saafa field during 2012 is not expected to reoccur. Production levels are assumed to increase marginally to reflect capacity upgrades.Country CeilingsAdditional Disclosure Solicitation StatusALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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