Fitch revises FimBank’s outlook to negative, affirms at ‘BB’

The revision of the Outlook to Negative reflects Fitch's concerns over the bank's weakening capital ratios in the past two years following business expansion.

Fitch considers that FIM needs to continue operating with higher capital ratios in view of the bank's exposure to credit risk, high concentration levels by obligor and operational risk inherent in its activities.

FIM's ratings continue to reflect its controlled asset quality, resilient profitability and balanced funding structure.

FIM's appetite for credit risk is material but the bank has shown it is capable of adequately managing it to date.

 FIM is significantly exposed to emerging markets through its lending,  forfeiting and off balance sheet exposure.

However, the short-term nature of trade-finance transactions mitigates to some extent country risk. Asset quality remained adequate in 2011 with impaired loans stable at around 2% on total loans to customers and banks, despite increased risk at the bank's factoring subsidiary in Dubai.

Reserve coverage of impaired loans remained sound, albeit slightly decreasing.

Operating profitability improved in 2011, as shown by its H111 operating ROAE of 7.3%, sustained by the positive momentum of the forfaiting market where assets were traded at higher spreads and lower loan impairment charges which together compensated for somewhat higher costs.

The reduction in net commission income partly reflects lower trade finance volumes towards Libya.

FIM has further diversified its funding structure attracting client deposits, which at end-H111 represented a balanced 40% of non-equity funding. FIM's liquidity remains adequate owing to the short-term nature and careful matching of its assets and liabilities.

The Fitch core capital ratio, which stood at 14% at end-H111, has declined in the past two years (from 19% at end-2009) as risk weighted assets grew and more joint ventures were entered into in the factoring business. FIM's management is conscious that capital strengthening is needed to support growth and meet future regulatory requirements.