Reuters: Fitch Ratings has downgraded National Bank of Bahrain's (NBB) and BBK B.S.C.'s (BBK) Long-term Issuer Default Ratings (IDRs) to 'BBB-' from 'BBB'.

Fitch has affirmed Ahli United Bank B.S.C.'s (AUB) IDR at 'BBB+'. The Outlooks are Stable. At the same time, Fitch has downgraded NBB's Viability Rating (VR) to 'bbb-' from 'bbb'. A full list of rating actions is at the end of this rating action commentary. The rating actions follow Fitch's downgrade of the Bahraini sovereign (see 'Fitch Downgrades Bahrain to 'BBB-'; Outlook Stable' dated 5 June 2015 on www.fitchratings.com). NBB's IDR is driven by its VR.

The downgrade of NBB's VR reflects Fitch's view that it is not appropriate to rate the bank above the Bahraini sovereign; NBB is a domestic bank and exposed to the sovereign and the domestic operating environment. At the same time, Bahrain's ability to support NBB has also weakened, as reflected in the revision of the Support Rating Floor (SRF) to 'BBB-'.

BBK's IDR is support-driven and the downgrade of its IDR follows the revision of its Support Rating Floor to 'BBB-' reflecting pressure on Bahrain's ability to support its domestic banks. AUB's IDR has been affirmed as Fitch considers there has been no material change in the willingness or ability of AUB's core shareholder to support the bank. KEY RATING DRIVERS IDRS, SENIOR DEBT, SUPPORT RATINGS AND SUPPORT RATING FLOORS BBK's and AUB's IDRs are support-driven.

BBK's IDR, senior debt rating, Support Rating (SR) and SRF are driven by potential support from the Bahraini sovereign. Fitch's view of support for BBK is based on its systemic importance as a major retail and corporate bank in Bahrain, and the Bahraini authorities' high propensity to support domestic commercial banks.

AUB's IDR, senior debt rating and SR reflect the high probability of institutional support from its core shareholder, the Public Institute for Social Security (PIfSS), an arm of the State of Kuwait (AA/Stable), which holds a 17.8% stake. The very strong links between PIfSS and AUB date back to before the creation of AUB, and include PIfSS's strong interest as shareholder in both AUB and its Kuwaiti subsidiary (12.2% stake).

The Outlook on AUB's IDRs is Stable as Fitch considers neither PIfSS' ability nor its propensity to support AUB has changed following the downgrade of the sovereign rating. NBB's SR and SRF reflect Fitch's expectation of a high probability of sovereign support from the Bahraini authorities, if required. This view is based on NBB's leading domestic franchise. We also expect the significant Bahraini government ownership (of 45%) could provide some additional incentive to support the bank.

The bank's IDRs are driven by its VR. KEY RATING DRIVERS - SUBORDINATED DEBT The subordinated debt of AUB and BBK is rated one notch below the banks' respective Long-term IDRs, reflecting Fitch's view that institutional support (AUB) and sovereign support (BBK) would flow through to all senior and to currently outstanding subordinated debt issuance, even though as per Fitch's criteria, subordinated debt would typically be notched down from the VR. VR BBK's VR is unaffected by the sovereign rating action. BBK's VR is at the level of the sovereign's Long-term IDR and Fitch believes there have been limited changes in the bank's credit profile since the last review in December 2014. AUB's VR is unaffected by the sovereign rating action. The majority of AUB's activities are outside of Bahrain and Fitch believes there have been limited changes in the bank's credit profile since the last review in December 2014. NBB's VR has been caped at Bahrain's Long-term IDR to reflect the significant exposure to the Bahraini sovereign, which makes it inappropriate to rate the bank above the sovereign in Fitch's view.

Fitch believes there have been limited changes in the bank's credit profile outside of the sovereign downgrade since the last review in December 2014. RATING SENSITIVITIES IDRS, SENIOR DEBT, SUPPORT RATINGS AND SUPPORT RATING FLOORS BBK's IDR, Senior Debt Rating, SR and SRF are sensitive to a weakening of the Bahraini authorities' ability to provide support, as reflected in Bahrain's sovereign rating, or reduced propensity to support the largest Bahraini banks. A downgrade of the IDR would also require a downgrade of the VR. NBB's IDR is driven by its VR. Given NBB's domestic focus, Bahrain's sovereign rating would likely constrain NBB's VR. A change in the Bahraini authorities' ability to provide support would also affect the SRF. AUB's IDR and SR are sensitive to a change in Fitch's view of PIfSS's ability or propensity to provide support and also to changes in Bahrain's Country Ceiling. The IDRs would be downgraded if Fitch believes that PIfSS's ability or willingness to support has diminished, including as a result of a significant increase in country risk. An upward revision of Bahrain's Country Ceiling, although unlikely at present, could lead to an upgrade of AUB's Long-term IDR by one notch. VRs AUB's VR is sensitive to asset quality or liquidity deteriorations or if its Fitch Core Capital ratio is severely eroded. Upside potential is currently limited, considering concentration in the loan book as well as the uncertain operating environment in Bahrain and elsewhere in the Middle East, notablyEgypt. Downside risk to BBK's VR could arise if the socio-political or economic climate in Bahrain materially deteriorates or if asset quality or capitalisation considerably weakens from current levels. Upside potential for NBB's VR is somewhat limited at present because of the uncertain operating environment in Bahrain, while downside risk might arise from further deterioration in NBB's asset quality, or a worsening of the Bahraini economy.

A significant reduction in capital would also be ratings negative. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The subordinated debt ratings are sensitive to the same considerations that might affect each of the bank's Long-term IDRs. In addition, AUB's and BBK's subordinated debt ratings are sensitive to any potential change in Fitch's assumptions relating to support in the Gulf for bank subordinated debt The rating actions are as follows: AUB: Long-term IDR affirmed at 'BBB+'; Stable Outlook Short-term IDR affirmed at 'F2' Viability Rating of 'bbb' unaffected Support Rating affirmed at '2' Senior unsecured debt affirmed at 'BBB+'/'F2' Subordinated debt affirmed at 'BBB' BBK: Long-term IDR downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term IDR affirmed at 'F3' Viability Rating of 'bbb-' unaffected Support Rating affirmed at '2' Support Rating Floor revised to 'BBB-' from 'BBB' Senior unsecured debt downgraded to 'BBB-' from 'BBB' Subordinated debt downgraded to 'BB+' from 'BBB-' NBB: Long-term IDR downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term IDR affirmed at 'F3' Viability Rating downgraded to 'bbb-' from 'bbb' Support Rating affirmed at '2' Support Rating Floor revised to 'BBB-' from 'BBB'.