BMI 26 January 2006...  Capital Intelligence assigns BBB and A3 long and short-term & BB+ (FSR) Standard & Poor assigns BBB- and A3long and short-term Moody’s assigns Baa2 and Prime-2 long and short-term & D- (FSR)

Manama, 15 January 2006: Bahrain based BankMuscat International (BMI) today received its third vote of confidence in less than a week when Capital Intelligence, the international emerging markets rating agency, assigned it long and short-term foreign currency ratings of BBB and A3 respectively, with a support rating of 2, and a financial strength rating of BB+. A stable outlook is assigned to the ratings.

Earlier BMI had received positive ratings from both Standard & Poor who assigned it a ''BBB-/A-3'' long- and short-term counterparty credit ratings and Moody’s who assigned it a Baa2 and Prime-2 long- and short-term foreign currency deposit ratings and a D- financial strength rating The outlook for both is stable.

“The positive ratings we have received in the past week reflect the significant achievements of BMI in its first year of operations. BMI is committed to deliver innovative and unique financial solutions and I am pleased with our performance to date.” said Musallam Al Shukairi, CEO of BMI.

BMI constitutes an integral part of the Omani parent BankMuscat (SAOG) and the ready availability of parental support combined with BMI’s strong ownership (through the investment arms of various GCC sovereigns) underpins the foreign currency ratings. Although BMI in its current form has a relatively short track record and ranks among the smaller sized institutions in the Bahraini banking sector, the Bank continues to make steady progress at building its balance sheet assisted by supportive shareholders. BMI’s largest shareholder, BankMuscat (SAOG) with a 49% shareholding, exercises management control. The Omani parent is the only commercial bank in Oman with a direct government stake (22%).

BMI’s vision is to become a dynamic regional bank, providing innovative and unique financial solutions to corporate and retail customers. Given the small and highly competitive nature of the Bahraini banking sector, BMI faces significant challenges as it builds up the critical mass to consolidate a meaningful position in the local market and region. The Bank currently has a market share of about 6% of lending in Bahrain.

BMI’s financial strength rating of BB+ from Capital Intelligence reflects its sound asset quality as evidenced by the low level of problem loans and strong provisioning levels. The launch of retail lending a few years ago has brought diversification to BMI’s balance sheet and earnings. Profitability is now one of BMI’s major strengths reflecting steady streams of net interest and non-interest income. The liquidity position, which had previously been satisfactory, tightened significantly in 2005 as credit growth outstripped that of customer deposits. Nevertheless, the strong support factor combined with BankMuscat's management control substantially mitigates the concern over liquidity.

The gradual expansion of the branch network will broaden customer funding over time and dilute the current funding concentration. BMI’s balance sheet is comfortably capitalised and a policy of full earnings retention has served to grow the capital base. The Bank is in the process of raising USD30mn in Tier 2 capital to support its expansion goals. As at end 2005, BMI had total assets of USD661mn and total capital of USD64mn. Net profit increased by 18.3% to USD10.7mn in 2005 over the preceding year.

"The ratings on BMI mainly reflect the bank''s shareholding structure," said Standard & Poor''s credit analyst Emmanuel Volland. "We consider that BMI''s part ownership by, important cooperation with, and increasing strategic importance to BankMuscat mean that strong support in times of difficulty would be highly likely," added Mr. Volland.

The ratings on BMI also reflect its adequate risk profile, well-defined strategy, and satisfactory financial performance. They are constrained by its small size, short track record, rapid asset growth, and weak funding profile. "The stable outlook reflects that on BankMuscat," said Mr. Volland. "It also balances BMI''s expected rapid growth with its satisfactory profitability and supportive shareholders."

Although not likely, a change in ownership structure could have a negative effect on the ratings. In addition, a failure to control increasing credit risks or a major and faster-than-expected reduction in the bank''s capitalization could put pressure on the ratings. Conversely, the ratings could be raised if the creditworthiness of BankMuscat increases and BMI is able to control risks related to its rapid growth.