August 19 (SeeNews) - Moody's Investors Service said it affirmed all of Albania’s Credins Bank Sh.a. (Credins) ratings and changed the outlook on the bank's B1 local-currency deposit rating to negative from stable. All other ratings carry a stable outlook, Moody's said in a statement issued last week. Moody's also said in its statement: “The affirmation reflects Credins's sizeable loss absorption capacity as demonstrated by its improving capitalisation and provisioning coverage, and solid historic pre-provision profitability. Nevertheless, the negative outlook reflects Moody's expectation that the bank's pre-provision profitability will likely come under pressure from margin compression and subdued new loan growth, in the context of Albania's economic slowdown and rising levels of non-performing loans. The full list of ratings affected by today's rating action is provided at the end of this press release. RATINGS RATIONALE --- AFFIRMATION DRIVEN BY SIZEABLE LOSS ABSORPTION CAPACITY The rating affirmation reflects Credins's improving capitalisation and provisioning coverage that leads to a sizeable loss absorption capacity. Over the past two years, Credins has been building up its capital buffers, with the total capital ratio improving to 14.2% as of year-end 2012 (year-end 2010: 13.4%), and the provisioning coverage ratio -- measured as IFRS loan-loss reserves as a proportion of problem loans -- improving to 67% at year-end 2012 (year-end 2010: 48%). In addition, Credins's historically solid pre-provision profitability (PPI as a percentage of average risk-weighted assets of 5.1% for 2012) has allowed the bank to absorb the higher provisioning costs (which have risen to 4.4% of average gross loans for 2012). The higher provisioning costs reflect the bank's provisioning policy and Albania's economic slowdown, which has weakened the bank's asset quality. --- CHANGE IN OUTLOOK REFLECTS EXPECTATIONS FOR WEAKENING PRE-PROVISION PROFITABILITY AND CONTINUATION OF LARGE CREDIT LOSSES While the bank has been able to successfully absorb the higher provisioning costs to date, the change in outlook to negative, from stable, reflects Moody's expectation that going forward Credins's pre-provision profitability will increasingly come under pressure due to reduced net interest margins and limited loan growth. Accordingly, Moody's considers that there is a risk that these factors could lead to a decline in pre-provision profitability to a level that would be inadequate to offset continued high credit losses. - WEAKENING PRE-PROVISION PROFITABILITY Moody's expects Credins's profitability to be affected by lower net interest income following cuts to Bank of Albania's key interest rate to a record low 3.75% that will compress margins, while there is a risk that interest rates may fall further. In addition, Moody's expects that lower business volumes will further pressure Credins's pre-provision profitability. In particular, loan book growth will likely decelerate due to limited new loan demand from creditworthy enterprises and individuals. The bank's loan book growth slowed down to 10% during 2012, following a compound annual growth rate of 40% during the period between 2007 and 2011, and Moody's expects loan growth to fall further in 2013. - CONTINUATION OF HIGH CREDIT LOSSES Moody's expects that the depressed economic environment will continue to negatively affect Credins's asset quality, which, together with the seasoning of the bank's portfolio will lead to further high provisioning needs. The rating agency forecasts that Albania's real GDP growth at 1.7% and 2.6% in 2013 and 2014, respectively, will remain well below the levels recorded prior to the 2008-09 global financial crisis. As a consequence, we expect that high credit costs may erode the bank's weaker pre-provision income. WHAT WOULD MOVE THE RATINGS UP/DOWN Downward pressure on Credins's B1 local-currency deposit rating could develop if the bank experiences a further weakening in asset quality that pressures the bank's capital levels and weakens its solvency. As expressed by the negative outlook, there is currently very limited upside potential for Credins's ratings. However, the outlook could be changed back to stable if the bank restores its recurring profitability or if asset quality pressures abate. LIST OF AFFECTED RATINGS - Long-term local-currency deposit rating of B1, affirmed with a negative outlook - Long-term foreign-currency deposit rating of B2, affirmed. The foreign-currency deposit rating carries a stable outlook as it is capped at B2 by Albania's foreign-currency deposit ceiling. - Short-term local and foreign-currency deposit ratings of Not Prime, affirmed - Standalone bank financial strength rating (BFSR) of E+ (equivalent to a baseline credit assessment of b2), affirmed with a stable outlook The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.”