Moody's on May 27 downgraded Bahrain-based Gulf International Bank BSC's baseline and adjusted baseline credit assessments to "ba2" from "ba1."

The agency affirmed the bank's Baa1/P-2 foreign-currency deposit ratings, Baa1(cr)/P-2(cr) long- and short-term counterparty risk assessments, and Baa1/P-2 long- and short-term counterparty risk ratings. Also affirmed was the bank's Baa1 foreign-currency senior unsecured debt rating.

The downgrade in baseline credit assessment reflects the bank's deteriorating asset quality, weak internal capital generation and an increase in nonperforming loans, which amount to 7.0% of gross loans as of December 2018. More than 50% of the bank's loans are in Saudi Arabia, and Moody's noted that the increase in the company's NPLs is largely driven by the mid-size corporate segment in the kingdom, which is facing difficulties due to a weaker operating environment.

The affirmations of the bank's foreign-currency deposit and senior unsecured debt ratings reflect Moody's view of a very high probability of support from the bank's major shareholder, the Saudi government. The ratings benefit from four notches of government support, up from three notches.

The outlook on the bank and its long-term deposit and senior unsecured debt ratings was changed to stable from negative, reflecting the outlook on Saudi Arabia's issuer rating and Moody's expectation that the funding and solvency of the bank will remain stable.