S&P’s harsh reality check

By: |
May 31, 2016 7:19 AM

S&P Global Ratings on Monday downgraded the long-term issuer credit rating on public sector lender Bank of India (BoI) to ‘BB+’ from ‘BBB-’, but said that its outlook was stable.

Bank of India, loss, provisions, Melwyn Rego, NPA“We downgraded BoI because we expect the bank’s asset quality to remain weak over the next 12 months, following a recent deterioration,” said Amit Pandey, credit analyst, S&P Global Ratings, adding that it has lowered BoI’s standalone credit profile (SACP) to bb from bb+.

S&P Global Ratings on Monday downgraded the long-term issuer credit rating on public sector lender Bank of India (BoI) to ‘BB+’ from ‘BBB-’, but said that its outlook was stable.

“We downgraded BoI because we expect the bank’s asset quality to remain weak over the next 12 months, following a recent deterioration,” said Amit Pandey, credit analyst, S&P Global Ratings, adding that it has lowered BoI’s standalone credit profile (SACP) to bb from bb+.

At the same time, it lowered the short-term rating on the bank to ‘B’ from ‘A-3’ and also lowered the issue ratings on BoI’s senior unsecured debt to ‘BB+’ from ‘BBB-‘ along with long-term issue ratings on the bank’s Basel II compliant hybrid notes (upper tier II subordinated and hybrid tier 1 notes) to ‘B’ from ‘B+’.

“About 70% of the bank’s loans are in the domestic market, and about 69% of these loans are to the corporate and micro and small and midsize enterprise segments,” the rating agency said.

Rising stress in these exposures, it said, led to an increase in the bank’s consolidated gross non-performing loan (NPL) ratio to 13.09% as of March 2016 from 5.36% as of March 2015.

“In addition, BoI has sizable exposure to the infrastructure and metal sectors, which we view as having high risk,” S&P said, adding that these sectors have come under stress in the current business cycle and BoI’s NPLs had increased more than 100% year-on-year by the end of March 2016, one of the highest among the peer banks that we rate in India.

“The ratings on BoI reflect one notch of uplift from the bank’s SACP because we expect the government of India to provide timely and sufficient extraordinary support to the bank if it comes under financial distress,” it said.

The agency said its view of a very high likelihood of extraordinary government support is based on its assessment of BoI’s very strong link with and very important role to the government.

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