BoI credit profile to remain weak for a year: S&P

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Mumbai | June 05, 2015 12:10 AM

Public sector lender Bank of India's credit profile is likely to stay weak for next one year and its standalone credit rating is unlikely...

Public sector lender Bank of India’s credit profile is likely to stay weak for next one year and its standalone credit rating is unlikely to get an upgrade, says global rating agency Standard & Poor’s.

“It is unlikely that a review upwards will happen over the next 12 months given our expectation on the asset quality,” said Deepali Chhabria, credit analyst at the rating agency. The agency had downgraded the bank’s standalone credit profile two notches on Wednesday to BB+ from the earlier BBB-. The outlook has been retained as stable. While most public sector banks enjoy the same credit profile rating as the sovereign (BBB-), BOI’s is now two notches down given its high stock of stressed assets.

The lender’s bad loan stockpile rose to 3.36% of the total advances on a net basis, consequently, provisions hurtled the bank to a loss in January-March. According to the rating agency, the January-March results were worse than expected, triggering a review.

The bank posted a net loss of R56.1 crore for the first time in 14 years in the January-March quarter mainly on soaring provisions on the back of mounting bad loans and restructured assets. Outgoing chairman and managing director VR Iyer had said that the worst is over as far as NPAs are concerned.

“BoI was so far performing better than its peers because of the large international portfolio. We have been commenting that we are seeing stress earlier as well. But the quarterly results were worse than our expectations,” said Chhabria.

As of March 31, the bank’s net non-performing assets stood at R13,518 crore while restructured assets stood at Rs 28,235 crore. Stressed assets as a percentage of total advances was a whopping 10.4%, one of the highest among public sector banks.

S&P in its note on Bank of India said it expects the lender’s credit costs to remain high because of the asset quality pressures and owing to the slowdown in the economy. However, the agency has kept Bank of India’s long-term and short-term issuer ratings unchanged as they expect that the government will provide “extraordinary” support during times of extreme stress on the bank’s balance sheet.

Most public sector banks have been facing downgrades from global rating agencies due to the rising bad loans. Earlier this year, Moody’s Investor Services had downgraded the ratings of Central Bank of India and Indian Overseas Bank, citing asset quality issues.

Stressed assets
* It is unlikely that a review upwards will happen over the next 12 months given our expectation on the asset quality
* We have been commenting that we are seeing stress earlier as well. But the quarterly results were worse than our expectations
* S&P in its note says it expects Bank of India’s credit costs to remain high because of the asset quality pressures and owing to the slowdown in the economy

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