Fimbank | Fitch affirms 'BB/B' issuer default ratings

Fitch Ratings has affirmed Malta-based Fimbank's Long-term Issuer Default Rating (IDR) at 'BB', Short-term IDR at 'B', Viability Rating (VR) at 'bb' and revised the Outlook on the IDR to Stable

from Negative. The Support Rating is affirmed at '5' and the Support Rating Floor at 'No Floor'.

The bank's IDRs are driven by its intrinsic strength as reflected in its VR.

The ratings affirmation reflects the bank's niche focus on trade finance, resilient profitability and relatively healthy asset quality, whose risk is mitigated by the secured, short-term nature of much of its business. However, the bank is relatively small in absolute terms and as a result, both funding and assets are highly concentrated.

Furthermore, Fitch's view is that its widespread business, including a large number of minority stakes in various affiliates, increases its operational risk and puts additional pressure on the value of its franchise. Fitch considers its core capital ratio of 14.8% at end-June 2012 to be just adequate for its rating level.

The revision of the Outlook to Stable reflects the actions FIM has taken to improve its funding profile, to find new sources of capital and to bring in new shareholders. These should enable it

to compete more effectively in its chosen markets. Nonetheless, the ratings remain sensitive to continued losses at its affiliates and low profitability in its traditional trade finance business. Furthermore, the ratings could be under negative pressure again if a change in shareholding does not result in an improvement in capital ratios and a more focused strategy. Upward rating movement is limited given the bank's small size, limited franchise and low profitability.

Rating drivers

Although the bank would first look for support from its shareholders, the availability of such support cannot be ascertained by Fitch and therefore it is not factored into the ratings.

The Support Rating and Support Rating Floor reflect Fitch's view that support from the Maltese authorities may be possible but is not certain and, again is not factored into the ratings.

For the above reasons, the lowest Support Rating of '5' and the Support Rating Floor of 'No Floor' have been affirmed.

The Support Rating is sensitive to the rating and propensity of Malta to support FIM. However, a strengthening of the shareholder base may result in an upward revision of the Support Rating (and

withdrawal of the Support Rating Floor), depending on Fitch's view of the ability and propensity of any new shareholder to provide support on a timely basis as and when required.