June 3 (SeeNews) - Fitch Ratings said on Monday it has affirmed the long-term Issuer Default Rating (IDR) of Bulgaria's First Investment Bank at 'B', with a stable outlook.
FIBank's Viability Rating (VR) has also been affirmed at 'b', after no major change in the bank's credit profile was discovered since the last review, the ratings agency said in a statement.
Fitch also said in its statement:
"KEY RATING DRIVERS
IDRS AND VR
The IDRs of FIBank are driven by its standalone financial strength, as expressed by its VR. The Outlook is Stable because in our opinion risks related to FIBank's intrinsic creditworthiness are broadly balanced.
The VR primarily reflects FIBank's weak asset quality and capitalisation. This is illustrated by a high ratio of impaired loans and non-income-generating repossessed assets, high capital encumbrance by unreserved problem assets and significant single-name concentration in the loan book. The VR also reflects FIBank's reduced credit risk appetite, reasonable strategy for 2017-2021, stable recent profitability and comfortable liquidity position, underpinned by stable funding in the form of granular retail savings accounts. However, these factors have lower influence on the VR than the bank's weak asset quality and capitalisation.
At end-2018, FIBank's impaired loans ratio (comprising Stage 3 loans) equalled about 22% (sector average: about 11%). The ratio remained stable in 2018 as loan growth and write-offs/sales of legacy bad debts offset a material inflow of new impaired loans (due to the application of IFRS 9). This inflow (of about 30% of end-2017 balance, net of write-offs) demonstrates still elevated credit risks in the bank's outstanding portfolio, despite a supportive operating environment.
FIBank also holds a substantial stock of repossessed assets, which equalled 11% of assets at end-2018 (end-2017: 13.5%). FIBank's repossessed assets shrank in late 2018 mainly because the bank leased a sizeable industrial land plot to a Austrian real estate developer. Only about 20% of FIBank's repossessed assets are classified as income-producing, mostly in the form of commercial retail and office space. FIBank's portfolio-cleaning has been considerably slower than peers', due mainly to higher complexity of problem assets and a weaker capacity to absorb additional impairment.
FIBank's capitalisation is a rating weakness because it is not commensurate with the bank's large, although gradually decreasing, concentration of high-risk assets. At end-2018, FIBank's Fitch Core Capital (FCC) ratio equalled 12% and was notably lower than Bulgarian peers'. The ratio shrank 2.4pp in 2018 due to the application of IFRS 9 and some loan growth. FIBank's capital encumbrance is high. At end-2018, impaired loans (net of all loan loss allowances) accounted for 80% FCC. The ratio was 207% including repossessed assets.
FIBank is the largest domestically-owned bank in Bulgaria and is controlled by two Bulgarian private individuals, each holding 42.5%. The rest is widely held. The bank is listed on the Bulgarian Stock Exchange.
SUPPORT RATING AND SUPPORT RATING FLOOR
FIBank's Support Rating Floor (SRF) of 'No Floor' and the Support Rating (SR) of '5' express Fitch's opinion that although potential sovereign support for the bank is possible, it cannot be relied upon. This is underpinned by the EU's Bank Recovery and Resolution Directive, transposed into Bulgarian legislation, which requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support.
RATING SENSITIVITIES
IDRS AND VR
FIBank's IDRs are sensitive to changes in the bank's VR.
An upgrade of FIBank's VR would require swifter resolution of legacy-impaired loans, a reduction of loan book concentrations and monetisation of repossessed assets without denting the bank's capitalisation, and a longer track record of sound profitability. FIBank's VR could be downgraded if the bank's capitalisation or asset quality deteriorates."
First Investment Bank AD is among the biggest banks in SEE. You can download our SEE Top 100 ranking
here or subscribe to our free Top 100 newsletter
here