Standard & Poor's Ratings Services has kept its 'BB+' long-term counterparty credit rating on Bahrain -based BMI Bank B.S.C . on CreditWatch with negative implications, where it was placed on 3 June 2013 . At the same time, S&P affirmed its 'B' short-term counterparty credit rating on the bank. The CreditWatch action reflects that the ratings agency is still waiting for the Central Bank of Bahrain to approve the merger between BMI Bank and Al-Salam Bank-Bahrain (not rated) before it can assess the business and financial profile of the new entity. S&P affirmed the short-term rating because there has been no major change in BMI Bank's financial performance to date. The original CreditWatch placement was based on the expectation that Oman -based Bank Muscat , BMI Bank's 49 per cent shareholder, will see a significant dilution in its stake if the proposed merger goes ahead. S&P currently assesses BMI Bank as strategically important to Bank Muscat . As a result, it incorporate three notches of uplift from the 'b+' stand-alone credit profile (SACP) into the ratings on BMI Bank . Al-Salam Bank and BMI Bank received their shareholders' approvals for the transaction in October and November 2013 . Based on the accounted share swap rate, BankMuscat's stake in the new bank will fall to around 15 per cent. "We understand that the banks are working on finalising the transaction and presenting their plan to the Central Bank of Bahrain for its approval, and getting the other necessary regulatory approvals before the end of the first quarter of 2014," said S&P. "While the merged entity's business position in Bahrain should be stronger than that of BMI Bank , potentially ranking fourth in assets, we have limited information to assess the future financial profile of the merged entity at this stage. Al-Salam Bank is a listed Shari'ah-compliant bank which largely engages in retail and investment banking related activities, whereas BMI Bank is a conventional bank with a focus on retail and commercial banking. "We expect to resolve the CreditWatch, if and when the transaction goes through, taking into account: The business and financial profiles of the new entity after the merger, which will drive our assessment on the SACP of the bank. Our reassessment of group support from BankMuscat , given the expected dilution of its stake. The systemic importance of the merged entity in Bahrain , which could positively affect our assessment of potential extraordinary government support. We understand that the merged bank will have a balance sheet of around $4.5 billion ."
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