IIRA reaffirms fiduciary ratings of GFH Financial Group

13/04/2016 16:49 AST

Islamic International Rating Agency (IIRA) has reaffirmed the international scale ratings of GFH Financial Group BSC (‘GFH’ or ‘the bank’) at ‘BB/B’ (Double B / Single B) and national scale ratings at ‘BB+(bh)/B(bh)’ (Double B Plus / Single B) with a ‘Positive’ outlook. The fiduciary score has been assessed in the range of ’61-65’, reflecting adequate fiduciary standards.

Over the past few years, the bank’s risk profile has improved, most notably in its capitalization and funding structure. Core income has also posted modest improvement on the back of growth in commercial and investment banking business. However, total transactions volume remains limited and the bank’s standalone profitability position continues to depend on one-off transactions and reversals, as has been the case over the prior few periods. The recent acquisition of a 10 per cent stake by Abu Dhabi Financial Group as an anchor shareholder, augurs well for the institution. The potential for business synergies in this acquisition, underlies the ‘Positive’ outlook on ratings.

Significant exposure to low-yielding or non-earning legacy assets constrain ratings. Some progress with respect to legacy projects has been noted. MENA region’s stressed politico-economic situation exacerbates challenges faced by the banking sector in general. GFH’s business strategy, entailing transformation into a diversified financial group, through strategic acquisitions and consolidation of its commercial banking arm, envisages developing alternative sources of revenues over the long-term.

Corporate and Shari’ah governance setup benefits from Bahrain’s strong regulatory guidance. Certain weaknesses have been identified that need to be addressed.

CPI Financial