Capital Intelligence, the leading emerging market bank rating agency, today announced that it has raised both the long-term foreign currency rating and financial strength rating of Bahrain’s Shamil Bank of Bahrain (SBB) to BBB- from BB+. The short-term foreign currency rating of A3 and support rating of 2 were maintained while a stable outlook was assigned to all the ratings.

The new ratings are as follows:

The agency states that the move is prompted by the strong growth in profitability and continuing reduction in non-performing financing (NPF). In assigning the ratings, CI gave due consideration to the strengths of the bank’s corporate only balance sheet–which depicts relatively low NPF, full coverage from financing-loss reserve, and a solid capital position–and to the premise that investment account holders in Islamic banking share their own risk. The latter feature helps in augmenting the overall risk absorption capacity of the bank. SBB has strong support from its principal shareholder, Dar Al-Maal Al-Islami Trust (DMI).

After more than two years of consolidation, SBB has returned to the growth path and registered a healthy overall performance during 2003. Profitability has increased considerably due mainly to the strong results of associated companies, a significant increase in fees and commissions and improved performance of funds under management. Despite growth during the year, financing forms a lower proportion of total assets and its quality has continued to improve. Although the extent of NPF is still high, provision cover has improved. The bank remained well capitalised and additional comfort is provided by the fact that investment account holders bear their own risk. Liquidity indicators were somewhat lower due to the modest growth in the deposit base, while SBB focused to increase interbank funding in order to improve the maturity matching of assets and liabilities. The results for the first half of 2004 reflected a further significant reduction in non-performing financing and an improvement in profitability.

Set up in June 2000 from the merger of Faysal Islamic Bank of Bahrain (FIBB) and Islamic Investment Company of the Gulf (IICG), SBB is 59% owned by Dar Al-Maal Al-Islami Trust, a trust by indenture established in the Bahamas. The bank holds offshore banking and full commercial banking licences issued by the Bahrain Monetary Authority (BMA) and its shares are listed on the Bahrain stock exchange. SBB partly owns Islamic banks in Pakistan (Faysal Bank Limited and Meezan Bank Limited) and in Yemen (Shamil Bank of Yemen and Bahrain) and has a 51% ownership interest in Faysal Finance (Switzerland). The bank’s activities include commercial and investment banking as well as fund management as a Mudarib (manager/ trustee) and conform to the principles of Islamic Shari’a. The bank managed USD1.4 billion in restricted investment accounts (funds under management reported off balance sheet) in addition to unrestricted investment/depositors’ accounts. In strict legal terms, both unrestricted and restricted depositors share their own risk without recourse to the bank. SBB operates from six branches in Bahrain, one branch in Bangladesh and a representative office in Qatar.