Fitch Affirms Banif’s IDR at ‘BB’; Upgrades VR to ‘b-‘

Citamos

Reuters

(The following statement was released by the rating agency) BARCELONA/LONDON, December 11 (Fitch) Fitch Ratings has affirmed Portuguese-based Banif – Banco Internacional do Funchal, S.A.’s (Banif) Long-term Issuer Default Ratings (IDR) at ‘BB’ with Negative Outlook, Support Rating (SR) at ‘3’ and Support Rating Floor (SRF) at ‘BB’. Fitch has also upgraded Banif’s Viability Rating (VR) to ‘b-‘ from ‘ccc’. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS – IDRS, SENIOR DEBT, SR AND SRF Banif’s Long-term IDR and senior debt rating are at its SRF. Their affirmation indicates Fitch’s expectation that there continues to be a moderate likelihood that Portugal (BB+/Positive) would support Banif if needed, until the EU bank resolution framework fully comes into effect. This expectation reflects both Portugal’s moderate ability to support its banks, supported by an estimated EUR2.5bn of available liquidity earmarked to support the banking sector if required, and Banif’s market position where it controls a deposit market share of around 3.4%. The Portuguese government has previously been supportive of domestic banks, including Banif. The Negative Outlook reflects Fitch’s belief that once the EU’s Bank Recovery and Resolution Directive (BRRD) is implemented in Portugal and the Single Resolution Mechanism (SRM) becomes functional, support, while possible, is unlikely to be able to be relied upon for banks whose Long-term IDR are at their SRFs, including Banif. RATING SENSITIVITIES – IDRS, SENIOR DEBT, SR AND SRF Banif’s Long-term IDRs and senior debt ratings are predominantly sensitive to further progress made in the implementation of BRRD and SRM. Once these are effective, they will become an overriding factor, as the likelihood of banks’ senior creditors receiving full support from the sovereign, if required, will diminish substantially. Fitch expects to downgrade Banif’s SR to ‘5’ and to revise its SRF to ‘No Floor’ during 1H15, depending on the progress in bank resolution legislation. This will result in a downgrade of Banif’s Long-term IDR and senior debt ratings to the level of its VR, currently ‘b-‘. The IDR, SR and SRF are also sensitive to any change in the assumptions underpinning Fitch’s assessment of Portugal’s ability to support banks. A downgrade of Portugal’s Long-term IDR, currently not Fitch’s base case, would likely lead to a downward revision of the SRF. Recovery prospects for senior debt holders in the event of default are sensitive to asset encumbrance and the amount of claims of preferred creditors, including protected depositors. KEY RATING DRIVERS – VR The VR has been upgraded to reflect modest stabilisation of asset quality deterioration plus the successful completion of a capital injection which raised EUR138.5m in May 2014. Nevertheless, Banif’s capital position is weak relative to a large portfolio of unreserved ‘credit-at-risk’ loans (CaR), which Fitch estimates reaches 84% of Fitch eligible capital (FEC) and about 136% of FEC when foreclosed real estate assets are included. Further pressure on capital adequacy is exerted by the bank’s large investments in real estate funds. The VR also reflects the considerable execution challenges faced by management as they try to implement an ambitious strategic plan, which still needs to receive the final approval from EU. This plan hinges on substantial deleveraging, branch closures and disposal of non-core businesses. Fitch considers the risks associated with the implementation of the plan are high. Banif’s asset quality is weak. Its regulatory CaR/total risk ratio reached a high 23% at end-1H14. Asset quality compares unfavourably with peers, weighed down by higher consumer lending and large exposure to troubled construction and real estate sectors. Coverage ratios are reasonable, at around 60%. Banif’s pre-impairment operating profitability is still weak, but results benefited from financial market operations, increased net interest income and lower overheads in 2014. In view of limited capacity to increase recurrent revenue sources, due to de-leveraging, little new business and low interest rates, the bank is accelerating its restructuring process to lower costs and intends to continue reducing deposit costs. Portugal’s expected economic recovery should support lower impairment needs. In 2014, Banif improved its funding and liquidity profile, thanks to an increase in deposits and the ability to issue some new debt, backed by securitised assets. Reliance on ECB funding is still significant. RATING SENSITIVITIES – VR Upward rating potential for the VR in the near term is limited in view of the high execution risks of the strategic plan and the bank’s weak standalone financial profile. Downward rating pressure would arise from an inability to successfully turn around the bank and ultimately needing additional extraordinary support, also in view of Banif’s fragile capital metrics. KEY RATING DRIVERS AND SENSITIVITIES- SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The bank’s subordinated debt has been upgraded to ‘CCC’ from ‘CC’. This is driven by an upgrade of the bank’s VR. Subordinated debt is notched once off the VR to reflect loss severity risk. Banif’s preference shares have been affirmed at ‘C’. Coupons on these shares are not being paid. The ratings are sensitive to changes in Banif’s VR or to changes in Fitch’s expectation of the instruments’ relative non-performance risk. The rating actions are as follows: Long-term IDR: affirmed at ‘BB’; Outlook Negative Short-term IDR: affirmed at ‘B’ VR: upgraded to ‘b-‘ from ‘ccc’ SR: affirmed at ‘3’ SRF: affirmed at ‘BB’ Senior unsecured debt long-term rating : affirmed at ‘BB’ Senior unsecured debt short-term rating: affirmed at ‘B’ Subordinated debt: upgraded to ‘CCC’ from ‘CC’ Preference shares: affirmed at ‘C’ Contact: Primary Analyst Roger Turro Director +34 93 323 8406 Fitch Ratings Espana, S.A.U. Paseo de Gracia, 85, 7th Floor 08008 Barcelona Secondary Analyst Belen Vazquez Associate Director +44 20 3530 1504 Committee Chairperson Janine Dow Senior Director +44 20 3530 1464 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 Financial Institutions Rating Criteria’, dated 31 January 2014, ‘Assessing and Rating Bank Subordinated and Hybrid Securities’, dated 31 January 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria hereAssessing and Rating Bank Subordinated and Hybrid Securities Criteria here Additional Disclosure Solicitation Status 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 WEBSITE ‘WWW.FITCHRATINGS.COM’. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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