Fitch downgrades Malta’s Fimbank to ‘BB’

Fitch Ratings has downgraded Malta-based Fimbank plc’s long-term issuer default rating (IDR) to BB- from BB, with a stable outlook.

At the same time, Fitch has affirmed the bank’s short-term IDR at ‘B’.

Fitch said the long-term IDR was downgraded to reflect the bank’s high risk appetite, which has resulted in a significant deterioration in asset quality, as well as unstable and weak earnings.

“FIM’s VR and IDRs are driven by its niche focus on trade finance, with relations in a number of emerging markets, including the Middle East and North Africa. They also reflect weak asset quality and profitability relative to peers, as well as capitalisation that is only just acceptable for FIM’s risk profile. This is despite further strengthening of capital in July 2014 following a USD48m rights issue supported predominantly by the Kuwait Projects Company Holding K.S.C.P. (KIPCO) group, FIM’s ultimate main shareholder,” Fitch said.

Fitch said Fimbank had a high level of unreserved impaired assets and high asset concentration. Most of its credit deterioration was driven by the consolidation in the first half of 2014 of weak quality factoring assets in India and Russia.

Fitch expects asset quality pressures to persist, with remaining factoring assets potentially posing add-on risks. It also said the bank’s revenue generation is low relative to its cost structure, resulting in limited flexibility to absorb further impairment charges as sizeable as those reported in 2014.

The Stable Outlook on the Long-term IDR reflects Fitch’s belief that FIM’s capital will continue to be supported by its ultimate owner in the foreseeable future, potentially easing further pressures from asset quality and profitability.

Fitch also assumes that in line with KIPCO’s dominant ownership, FIM will gradually be more operationally integrated into its parent, which could result in management and strategic changes.