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Fitch Affirms Mauritius Commercial Bank at 'BBB-'/Stable
February 22, 2017 / 12:29 PM / 10 months ago

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

(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: 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 _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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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