September 25, 2017 / 2:57 PM / 9 months ago

Fitch Affirms Fimbank at 'BB'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 25 (Fitch) Fitch Ratings has affirmed Malta-based Fimbank Plc's (Fimbank) Long-Term Issuer Default Rating (IDR) at 'BB' with a Stable Outlook. A full list of rating actions is available at the end of this rating action commentary. KEY RATING DRIVERS IDRS, SUPPORT RATING AND VR The IDRs and Support Rating of Fimbank are driven by potential support, if required, from its shareholder Kuwait-based Burgan Bank, 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. Therefore, Fimbank's IDRs are in line with Burgan's Viability Rating (VR) of 'bb'. Burgan's ultimate parent is Kuwait Projects Company Holding K.S.C.P. (KIPCO), a leading regional investment company.. Two other KIPCO subsidiaries, Bahrain-based United Gulf Bank and Tunisia-based Tunis International Bank hold 61.2% and 2.8%, respectively, in Fimbank. 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 bank subsidiaries. Fimbank's 'bb-' VR reflects the bank's niche trade finance focus and expertise, with business generated in and reliance on a number of emerging markets. The bank's company profile is underpinned by a long-standing franchise and improving business model, and we believe that Fimbank has a capable management team and clear turnaround strategy. We view Fimbank's risk appetite as being above average due to the nature of the bank's business. The bank is working through legacy problem loans and restructuring under-performing factoring subsidiaries. However, any material improvement to Fimbank's currently weak asset quality metrics will take time, in our view. Risk management and controls are improving, helped by Burgan's oversight. Fimbank's capital is under pressure from poor internal capital generation and regulatory adjustments. Furthermore, the bank is required to meet higher minimum capital requirements by the Malta Financial Services Authority as part of its Supervisory Review and Evaluation Process (SREP), which has curbed Fimbank's ability to grow. As a result, Fimbank's board has recently approved a fairly substantial rights issue, which is expected to be concluded in 4Q17. Fimbank's shareholders remain supportive, including fully subscribing a USD50 million subordinated bond in 2015, which is included in regulatory Tier 2 capital. The bank's Fitch core capital/risk-weighted assets ratio, however, was 11.7% at end-2016, which we view as only adequate in the context of Fimbank's risk profile. Recent profitability trends, although modest, are showing improvement and reflect better cost control and lower loan impairment charges. Funding and liquidity continue to strengthen with Fimbank's expanding retail deposit platform and ordinary funding support from Burgan. In our view, the former is price-sensitive but provides more stable and lower-cost funding than the bank can obtain on wholesale markets. 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/KIPCO reduce their stakes, if capital injections are not forthcoming or if Burgan's control or oversight of its associate loosens. Fimbank's Long-Term IDR could be upgraded by more than one notch if Fitch believes that support from its owners is more likely, for example, due to Burgan acquiring a majority stake in the bank or Fimbank evolving into a key and integral part of the group's business and providing core products and services to Burgan's core markets. Our base case is that Fimbank will receive a capital injection from its shareholders (or KIPCO), within the next six months to enable it to meet increased regulatory requirements. If it does not, its VR will likely be downgraded. Strong recovery in its financial metrics could result in Fimbank's VR being upgraded. Downside pressure on the VR could also come from weaker asset quality or a failure to improve underlying earnings further. The rating actions are as follows: Fimbank Long-Term IDR affirmed at 'BB'; Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'bb-' Support Rating affirmed at '3' Contact: Primary Analyst Mahin Dissanayake Director +44 20 3530 1618 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Huseyin Sevinc Associate Director ++44 203 530 1027 Committee Chairperson Bridget Gandy Managing Director +44 20 3530 1095 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here 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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