Fitch revises Bank of Valletta’s long-term rating to BBB+, outlook stable

In its latest rating action, Fitch has revised Bank of Valletta’s Long-term Issuer Default (IDR) Rating from A- to BBB+, with a stable outlook. The Short-Term rating was affirmed at 'F2’, the Individual rating at 'C' and the Support rating at '2'.

Fitch explained that this is the result of a “more cautious view” that it is adopting with regard to the level of concentration in the Bank’s loan book, “given the small size of the domestic economy.”

There has been no material change in the Bank’s fundamentals.  In fact, the rating agency commends BOV’s “satisfactory profitability, sound liquidity and funding position, adequate capitalisation as well as its position as the largest bank in Malta.”   Fitch affirms that the Bank’s “funding and liquidity are sound and supported by a large and stable customer deposit base.”  The bank’s ratio of lending to deposits continues to be kept “at conservative levels.”

The increase in the Bank’s ratio of doubtful loans to gross loans, as highlighted in BOV’s annual report for FY10, was attributed to the real estate and construction sectors.  Although Fitch stated that these are now “showing signs of improvements”, expectations are that loan impairment charges (LICs) will “remain higher than in the past.”   Nevertheless, the rating agency concludes that BOV’s profitability will “continue to benefit from a more favourable domestic economic environment in FY11.”