GLOBAL credit rating firm Standard & Poor's (S&P) has affirmed its A-' long-term issuer credit rating on Bank Islam Brunei Darussalam (BIBD), with the sultanate's flagship financial institution expected to retain its strong market position and financial stability.

The A-' rating is the highest for a Bruneian bank and on par with other banks in the region.

S&P also affirmed its A-2' short-term issuer credit rating and the axAA-' long-term and axA-1' short-term ASEAN regional scale rating on BIBD.

We affirmed the ratings because we expect BIBD to maintain its dominant market position in Brunei, very strong capitalisation, and high likelihood of government support, S&P Global Ratings Credit Analyst Amit Pandey said in a statement issued yesterday.

The firm said the rating on BIBD is two notches above the bank's stand-alone credit profile (SACP) of bbb due to the high likelihood of extraordinary government support for the bank in the event of financial distress.

Our view is based on BIBD's high systemic importance in Brunei and our assessment of the government as highly supportive. Our opinion on BIBD's systemic importance is based on its size and market position as the largest bank in Brunei, S&P said.

Yang Berhormat Dato Paduka Haji Bahrin Abdullah, Minister of Development in his capacity as BIBD Chairman, welcomed S&P's assessment.

We are honoured by the international reaffirmation of our capabilities as it strengthens our positioning as a leading financial institution that supports the growth and aspirations of our Bruneian and international stakeholders, he said in a statement issued yesterday.

YB Dato Paduka Hj Bahrin said S&P's affirmation of BIBD's high credit rating will help the bank strengthen its position as a local Islamic institution with global recognitions, with well-educated and highly-skilled employees able to support a dynamic and sustainable economy, in line with Brunei Vision 2035.

BIBD Managing Director Mubashar Khokhar said S&P's rating reaffirmation reflects the customers and stakeholders firm support to BIBD as well as the bank employees relentless commitment in taking BIBD a step closer in achieving its mission of becoming the First Choice bank for its customers, stakeholders and employees.

He also commended the forward thinking of Brunei's thought leaders in creating pro-business policies to support the development of businesses for the Bruneian economy.

S&P said BIBD's pre-diversification risk-adjusted capital (RAC) ratio is expected to remain above 23 per cent over the next 12 to 18 months, in line with a strong capital assessment.

However, BIBD's profitability, which is better than the industry average, is expected to be moderate due to increases in credit costs resulting from the effect of declining oil prices on local borrowers and the country's economy.

S&P said BIBD's dividend ratio is anticipated to be around 45 per cent and its average annual loan growth will be three to five per cent over the period.

Business growth for companies in Brunei is likely to be tepid, and a cap on the total debt service ratio will ensure only moderate growth in retail loans, S&P said.

The firm based BIBD's risk position on the bank's high exposure to personal and property loans.

Customer deposits have contributed over 90 per cent to BIBD's funding base in the past five years. S&P said the bank's ratio of loans to customer deposits of 63 per cent is comparable with that of other local banks. BIBD's liquidity ratios are stronger than some of its global peers.

S&P gave a negative outlook on BIBD.

Pandey said this reflects the risk that the Brunei government's ability to support the bank in times of financial distress may weaken over the next 12 to 18 months.

S&P said it may downgrade BIBD's credit rating if lower oil prices will continue to hurt the economy.

We will revise the outlook on BIBD to stable if oil prices recover sufficiently to boost the government's fiscal revenues and the country's per capita income or if the government commits to deep structural reforms to diversify the economy, S&P said.