Rating agency Moody's today (March 7, 2012) downgraded Bank of India (BoI) by one notch to D from D+, and kept its debt and deposits outlook ‘stable’.
The revised rating takes into account accelerated pace of deterioration in BOI's asset quality as well as stressed core capital levels, both of which could affect its profitability.
BOI raises foreign currency debt through its London and Jersey branches.
Explaining the downgrade, Moody’s said it will be difficult for BoI to improve its asset quality over the next 12-18 months.
State-owned BoI fell 2.6% today after Moody’s downgraded its credit rating.
The bank’s shares, which had been trading flat on a volatile day, fell post the downgrade announcement. In the past 12 months, BoI’s shares have fallen over 24.5% on the BSE, underperforming the BSE Sensex index which is down over 5.5% and the BSE Bankex index which has fallen over 5%.
However, since the beginning of 2012, BoI’s stock has risen 28%, outperforming the BSE’s benchmark Sensex, which is up 10%. BSE banking index, the Bankex, has risen 26%.
Moody’s pointed to the rapid increase in the formation rate of non-performing loans (NPL) to 3.2% on an annualized basis during the nine months ended December 2011, almost twice the 1.7% for the year-ended March 2011.
The bank has also seen a 14% drop in net income levels, while its return on risk weighted assets decreased to 1.03% on an annualized basis in the nine months through December 2011. Its risk weighed assets stood at 1.51% a year ago.
“Such figures compare weakly with its peers and indicate a vulnerability in the bank's already stressed capital buffers,” Moody’s said.
The agency’s analysis also considers the bank's comparatively low provisioning cover If the bank’s fundamentals don’t improve, it could face another downgrade to below ‘D’ in the next 12-18 months, Moody’s’ said.
“The Indian operating environment is characterized by an economic slowdown, high interest rates, and high inflation, which together will continue to adversely impact the repayment capacity of corporate borrowers. Such a situation poses risks of further deterioration in the bank's asset quality,” Moody’s said in a note.
At the same time, Moody’s noted that its rating also reflects BOI's comfortable liquidity and funding profiles, as well as its franchise value as the fourth largest public-sector bank in India in terms of total assets.
The Mumbai-based bank had assets of Rs3,511 billion as of 31 March 2011.
....more info
The revised rating takes into account accelerated pace of deterioration in BOI's asset quality as well as stressed core capital levels, both of which could affect its profitability.
BOI raises foreign currency debt through its London and Jersey branches.
Explaining the downgrade, Moody’s said it will be difficult for BoI to improve its asset quality over the next 12-18 months.
State-owned BoI fell 2.6% today after Moody’s downgraded its credit rating.
The bank’s shares, which had been trading flat on a volatile day, fell post the downgrade announcement. In the past 12 months, BoI’s shares have fallen over 24.5% on the BSE, underperforming the BSE Sensex index which is down over 5.5% and the BSE Bankex index which has fallen over 5%.
However, since the beginning of 2012, BoI’s stock has risen 28%, outperforming the BSE’s benchmark Sensex, which is up 10%. BSE banking index, the Bankex, has risen 26%.
Moody’s pointed to the rapid increase in the formation rate of non-performing loans (NPL) to 3.2% on an annualized basis during the nine months ended December 2011, almost twice the 1.7% for the year-ended March 2011.
The bank has also seen a 14% drop in net income levels, while its return on risk weighted assets decreased to 1.03% on an annualized basis in the nine months through December 2011. Its risk weighed assets stood at 1.51% a year ago.
“Such figures compare weakly with its peers and indicate a vulnerability in the bank's already stressed capital buffers,” Moody’s said.
The agency’s analysis also considers the bank's comparatively low provisioning cover If the bank’s fundamentals don’t improve, it could face another downgrade to below ‘D’ in the next 12-18 months, Moody’s’ said.
“The Indian operating environment is characterized by an economic slowdown, high interest rates, and high inflation, which together will continue to adversely impact the repayment capacity of corporate borrowers. Such a situation poses risks of further deterioration in the bank's asset quality,” Moody’s said in a note.
At the same time, Moody’s noted that its rating also reflects BOI's comfortable liquidity and funding profiles, as well as its franchise value as the fourth largest public-sector bank in India in terms of total assets.
The Mumbai-based bank had assets of Rs3,511 billion as of 31 March 2011.
....more info