IslamicFinance.de

Press Release
PARIS (Standard & Poor's) Jan. 26, 2009--Standard & Poor's Ratings Services said today that it revised its outlook on Bahrain-based Gulf Finance House (GFH) to negative from stable. At the same time, we affirmed the 'BBB-/A-3' long- and short-term counterparty credit ratings on the bank.

"The outlook revision reflects the increasingly difficult environment in which the bank operates, which is likely to limit its capacity to execute new transactions and therefore lead to a weaker financial performance," said Standard & Poor's credit analyst Emmanuel Volland.

In addition, the value of GFH's own investments, largely illiquid by nature, is set to decline. On a positive note, we believe that the nature of these assets means that they are less subject to marked-to-market deterioration than those of GFH's peers.

The ratings on GFH reflect its good financial performance, low and flexible cost base, adequate liquidity position, and satisfactory capitalization. These positive factors are balanced, however, by the bank's low business diversification, high financial leverage (as measured by the ratio of net debt to estimated portfolio value), significant reputation and concentration risks, and potential for earnings volatility. The ratings reflect the bank's stand-alone creditworthiness and do not incorporate any uplift for external support.

The negative outlook reflects our expectation that the deteriorated environment--limiting investment placements and exits and putting pressure on the value of GFH's own investments and financial performance--will linger through 2009. We will lower the ratings if the bank's leverage increases, or if it is not able to consolidate its liquidity profile and achieve adequate profitability. We could revise the outlook back to stable if we see an improvement in investment leverage metrics and a demonstration of the bank's capacity to maintain adequate profitability. There is very limited potential for an upgrade in the foreseeable future, as it would require a significant improvement in the bank's leverage, recurring income stream, and funding and liquidity profiles.