December 2, 2016 / 3:17 PM / 9 months ago

Fitch Upgrades Fimbank's IDR to 'BB'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 02 (Fitch) Fitch Ratings has upgraded Malta-based Fimbank's Long-Term Issuer Default Rating (IDR) to 'BB' from 'BB-' and Support Rating to '3' from '5'. The Outlook is Stable. A full list of rating actions is available at the end of this rating action commentary. The upgrades reflect increased management and operational integration of Fimbank with its minority shareholder Kuwait-based Burgan Bank (Burgan/A+/Stable). Following the upgrade Fimbank's Long-Term IDR is on the same level as Burgan's Viability Rating (VR) of 'bb'. The ratings also reflect our view that any support for Fimbank would be immaterial to Burgan's ability to provide it. They also take into account the demonstrated record of capital and funding support provided to Fimbank by Burgan and its sister bank, Bahrain-based United Gulf Bank (UGB). KEY RATING DRIVERS IDRS, SUPPORT RATING AND VR Fimbank's IDRs and Support Rating are driven by Burgan's VR, reflecting strong management and operational integration between the two banks. Burgan's Long-Term IDR of 'A+' is driven by sovereign support (Kuwait AA/Stable), but given its shareholding in Fimbank is only 19.7% and Fimbank is not based in Kuwait, we believe support from Kuwait cannot be relied upon to flow through to the Maltese associate. Burgan's ultimate parent is Kuwait Projects Company Holding K.S.C.P. (KIPCO) group, a leading regional investment company linked to Kuwait's ruling family. A further 61.2% stake in Fimbank is owned by another KIPCO bank subsidiary, UGB. Over time, we expect these stakes to be consolidated and Burgan to eventually take a majority stake in Fimbank, as it has done in most of KIPCO's other banking subsidiaries. Fimbank's VR is driven by the bank's niche trade finance focus and expertise, with business generated in a number of emerging markets. The bank experienced further asset quality deterioration in 9M16, a trend which could continue as it consolidates operations. The bank's Fitch core capital/risk-weighted assets ratio was 11.4% at end-June 2016, which we view as only adequate in the context of Fimbank's higher impaired loans and low reserve coverage. Fimbank's profitability continues to suffer from weak efficiency due to business reorganisation and elevated impairment charges, but we expect underlying earnings to strengthen once management has dealt with legacy issues. Funding and liquidity benefit from ordinary support from Burgan and Fimbank's expanding retail deposit platform. In our view, the latter is price-sensitive but provides lower cost funding for the bank. RATING SENSITIVITIES IDRS, SUPPORT RATING AND VR Fimbank's IDRs and SR are sensitive to a change in Burgan's VR. Fimbank's IDRs could also be downgraded if Burgan or the KIPCO group reduced their stakes, or if Burgan's control or oversight of its associate loosened. Fimbank's Long-Term IDR could be upgraded by more than one notch if Fitch believed that support from its owners was more likely, for example, if Burgan acquired a majority stake in the bank or if Fimbank evolved into a key and integral part of the group's business and provided core products and services to Burgan's core markets. A successful restructuring of Fimbank and a strong recovery in its financial metrics could result in Fimbank's VR being upgraded. Downside pressure on the VR could come from further asset quality deterioration or a failure to improve underlying earnings further. The rating actions are as follows: Long-term IDR: upgraded to 'BB' from 'BB-'; Outlook Stable Short-Term IDR: affirmed at 'B' Viability Rating: affirmed at 'bb-' Support Rating: upgraded to '3' from '5' Contact: Primary Analyst Mahin Dissanayake Director +44 20 3530 1618 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Manuela Banfi Associate Director +39 02 879087 202 Committee Chairperson Bridget Gandy Managing Director +44 20 3530 1095 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=1015752 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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