February 22, 2017 / 12:29 PM / in 5 months

Fitch Affirms Mauritius Commercial Bank at 'BBB-'/Stable

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(The following statement was released by the rating agency) LONDON, February 22 (Fitch) Fitch Ratings has affirmed The Mauritius Commercial Bank Ltd's (MCB) Long-Term Issuer Default Rating (IDR) at 'BBB-' and Short-Term IDR at F3. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRs and VR The IDRs of MCB are driven by its VR, which reflects a benign operating environment in Mauritius, but also limited opportunity for growth domestically. The VR further reflects MCB's sound company profile and financial metrics, based around the bank's dominant position in the domestic market. MCB has market shares of domestic loans, retail and corporate deposits in excess of 40%. The bank's franchise supports liquidity, with strong deposit growth and local currency liquidity deployed primarily in government bonds and treasury bills, or with the central bank. The offshore segment is not a significant part of the bank's business model and therefore any effect from the revision of Mauritius' Double Taxation Avoidance Agreement with India should be more limited for MCB than potentially for some international banks more focused on the offshore segment. Profitability metrics compare well with international peers', and MCB has managed to grow earnings year-on-year, in spite of weak loan growth. Strong profitability and slow loan growth is beneficial to capitalisation ratios. The bank's Fitch Core Capital ratio at end-2016 of 15.7% is adequate for its risk profile. In Fitch's view, asset quality is a relative weakness of MCB's credit profile. The impaired loans/gross loans to customers ratio of 5.8% at end-2016 was in line with the sector and has been persistently high since 2014. Impaired loan formation is low, but equally, the stock of MCB's impaired loans has not reduced significantly. We also view concentration risk as high due to the small size of the Mauritian economy and concentrated wealth. The Stable Outlook on the Long-Term IDR reflects the benign operating environment in Mauritius. SUPPORT RATING AND SUPPORT RATING FLOOR MCB's Support Rating (SR) of '3' and Support Rating Floor (SRF) of 'BB+' reflect a moderate probability of support from the Mauritian authorities, in the event of need. The ratings consider the large size of the bank relative to sovereign resources, but also Fitch's view that the authorities have a high propensity to support MCB, reflecting its systemic importance as the largest bank in Mauritius and the largest taker of domestic retail deposits, especially given the lack of deposit insurance in Mauritius. RATING SENSITIVITIES IDRs and VR An upgrade of MCB's IDR and VR is unlikely in the near-term, given the limitations of the domestic operating environment. However, a sustained reduction in the impaired loan stock would be credit-positive for the bank, as would greater diversification of its loan book, particularly a reduction of single borrower concentration. Improved and sustainable domestic economic growth could also be positive for the bank's ratings. A downgrade of the VR would most likely result from a sharp deterioration in asset quality ratios, including an increase in impaired loans and higher loan impairment charges, which would impact earnings and capital. This is most likely to result from a crystallisation of concentration risk or a general deterioration in the domestic economy. An increased risk appetite, indicated by a significant increase in exposure into lower-rated or unrated economies outside of Mauritius would also be a driver for a downgrade of the VR. SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRF could be upgraded and revised upwards, respectively, if we believe the sovereign's ability to support its largest domestic bank and more generally the banking system, strengthens. Conversely, a weakening of sovereign financial flexibility or an indication of lower propensity to support the bank would result in a downgrade and downward revision of the SR and SRF, respectively. The rating actions are as follows: The Mauritius Commercial Bank Ltd. Long-Term IDR affirmed at 'BBB-'; Outlook Stable Short-Term IDR affirmed at 'F3' Viability Rating affirmed at 'bbb-' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB+' Contact: Primary Analyst Andrew Parkinson Director +44 203 530 1420 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Bridget Gandy Managing Director +44 203 530 1095 Committee Chairperson Redmond Ramsdale Senior Director +971 4 424 1202 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019348 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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