Moodys Investors Service said on July 27 it assigned B3/not-prime long- and short-term foreign currency deposit ratings to Bulgarias Commercial Bank Investbank (iBank).
An E+ financial strength rating has also been assigned to the bank. All ratings carry stable outlooks.
Moodys said that the E+ financial strength rating reflects the banks small business franchise on Bulgarias competitive banking market, its high credit concentration levels and its vulnerability to development risks in the evolving Bulgarian banking market.
The rating also captures the banks good credit quality and good liquidity levels.
At the same time, the rating is constrained by iBanks weak earning power reflecting its low interest rate margins in the Bulgarian context and the relatively expensive operating structure.
Starting from a low base, the bank has been experiencing strong business and balance sheet growth, said Moodys.
Going forward, iBank is looking to change its strategic focus away form corporate banking and into retail. Aggressive expansion plans and fierce competition in the Bulgarian retail banking sector give rise to challenges with regards to managing growth which may become a concern, said Moodys.
In Moodys view, one of the challenges facing management will be the need to expand the funding base and grow the stable deposit base in order to support the banks growth. The rating agency also cites possible challenges in ensuring that the banks internal systems, procedures and controls are adequate and are commensurate with every stage in its development.
In this regard, iBank does not have the benefit of access to the support of a foreign shareholder bank, as do some of its competitors, and will therefore need to develop its internal systems based on its own resources.
The B3/ not-prime deposit ratings reflect the banks stand-alone creditworthiness based on its intrinsic franchise strength. Although the strategic shareholder has so far displayed willingness to provide capital support for the banks growth, Moodys has not imputed external support in the deposit ratings.
The planned 10 million leva capital increase will support the banks ratings, while failure to successfully increase capital levels promptly will limit the banks capacity to grow. Any further deterioration of regulatory capitalisation will be viewed as a negative rating driver, said Moodys.
Moodys also notes that the banks ratings could move up with a material strengthening of its franchise and improvement in the banks earning capacity and credit risk profile through the expansion and diversification of the loan portfolio.
