Shares of Mumbai-headquartered India's third-largest private sector lender Axis Bank dived nearly 3% in the late-afternoon deals on Friday after the global credit rating agency Fitch Ratings changed its outlook on Axis Bank to 'negative' from 'stable'.
Shares of Mumbai-headquartered India’s third-largest private sector lender Axis Bank dived nearly 3% in the late-afternoon deals on Friday after the global credit rating agency Fitch Ratings changed its outlook on Axis Bank to ‘negative’ from ‘stable’. Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDRs) and Viability Ratings of Axis Bank Ltd at ‘bbb-‘ and has revised the outlook on Axis to negative, from stable, Fitch Ratings said in a statement.
Following the development, the stock of Axis Bank tanked 2.99% to a day’s low of Rs 516.1 on NSE while the stock shed 2.9% to a day’s bottom of Rs 516.35 on BSE on Friday. A sharp uptick in the trading volumes of Axis Bank shares was also seen after the Fitch Ratings action. Up until 2:43 pm, more than 46 lakh equity shares exchanged hands on both NSE and BSE with about 43 lakh equity shares on NSE alone.
“The negative outlook on Axis’s IDR reflects rising pressure on its standalone profile relative to banks with a viability rating of ‘bbb-‘, stemming from heightened asset-quality stress and weak earnings. Its capital buffers are less comfortable for its current rating despite raising fresh capital,” Fitch Ratings said.
Negative pressure on Axis Bank’s Viability Rating reflect increased risk to the bank’s core capital position, despite fresh capital raising, given the deterioration in its NPL ratio to 6.8% in FY18, from 5.2% FY17, and poor earnings, with a return on assets of 0.04%, against 0.66% in FY17, Fitch Ratings stated.
Earlier in April 2018, Axis Bank posted its first-ever quarterly loss of Rs Rs 2,188.74 crore for the January-March period of the fiscal year 2017-2018. Further, Axis Bank skipped announcing a dividend for the first time in last 10 years. “After making mandatory appropriations to statutory reserve, investment reserve and capital reserve, no profits are available for distribution as dividend for the financial year ended 31 March 2018. Accordingly, no dividend has been recommended by the board of directors for the year ended 31 March 2018,” Axis Bank said in an exchange filing.
Fitch does not expect the Axis Bank bank’s earnings and NPL (non-performing loans) ratio to markedly deteriorate from current levels; indeed, there is scope for higher-than-Fitch-expected improvement in both parameters in FY19, provided some large NPLs are favourably resolved. The Viability Rating also recognises some weaknesses in the bank’s governance and control framework, Fitch Ratings added.
Fitch Ratings, however, has affirmed Axis Bank’s short-term IDR affirmed at ‘F3’, viability rating at ‘bbb-‘, support rating at ‘3’, support rating floor at ‘BB+’, $5 billion medium-term note programme at ‘BBB-‘ and $1.75 billion senior unsecured notes at ‘BBB-‘.
Fitch has a negative sector outlook on Indian banks. The new regulatory non-performing loan (NPL) framework that has accelerated bad-loan recognition is part of a clean-up that should improve banking-sector health over the long term. We expect internal capital generation for the sector, including the two private-sector banks, to stay weak in FY19, Fitch Ratings report said.