Mubasher: Fitch Ratings affirmed on Thursday Bahrain-based GFH Financial Group BSC's (GFH) Long-term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook and Short-term IDR at 'B'. 

GFH's IDRs reflect the substantial illiquid legacy real estate investments it still carries on its balance sheet, which do not yet generate much income, the limited track record of consistent profit and cash flow generation and the still early stage of development of the bank's business model, said the ratings agency.

It added that the ratings take into account GFH's success in raising capital in 2014, its improved funding and liquidity profile and the limited progress it has made so far in building a profitable and cash flow generative business. 

GFH's balance sheet still has high single name and sector concentration, with a significant proportion of assets consisting of real estate properties, securities (equity stakes) in real estate related projects or legacy loans related to real estate. GFH is planning to complete these real estate projects and either sell them (profitably) or retain them as an income-producing asset. While Fitch notes that some progress has been made on a number of these, completion and eventual exit will take many years. Therefore, these could still represent challenges for the group and constrain its financial profile for some years. 

Fitch considers that GFH's liquidity, leverage and funding profile have stabilised and should provide some flexibility to work out legacy asset exposures, although GFH's capacity for continued operation is vulnerable to deterioration in the business and economic environment.