Fitch Ratings has placed Bulgaria's First Investment Bank AD's (FIBank) Long-term Issuer Default Rating (IDR), Support Rating and Support Rating Floor on Rating Watch Negative (RWN). A full list of rating actions is at the end of this comment.
The RWN reflects the potential for the ratings to be downgraded following a review by Fitch of the likelihood of support from the Bulgarian authorities, if required.
Fitch believes that the Bulgarian state has the means to provide support to FIBank if needed, given the country's low government debt, available fiscal reserves and the relatively small size of FIBank's balance sheet (total assets equal to 7% of GDP). However the willingness to provide support is not certain, in Fitch's view, given the bank's non-state ownership, and might be undermined by potential weaknesses in FIBank's corporate governance.
Fitch will resolve the RWN after further discussions with the Bulgarian authorities on their approach to providing support to the country's banks, and a review of relevant legislation.
If the Support Rating Floor is revised, the bank's Long-term IDR will be driven by the bank's Viability Rating, which is currently 'b+'.
FIBank is majority owned by two Bulgarian businessmen, who each control a 29% stake. A further 27% is held by three offshore companies, where nominal and beneficial owners are not publicly disclosed. In Fitch's view, there is a risk of related party or relationship lending in light of the incomplete disclosure of the shareholder structure, the majority owners' other interests in capital intensive businesses (in particular, tourist infrastructure), weaknesses in corporate governance and the quite high risk nature of some loan exposures.
FIBank has a strong retail deposit franchise in Bulgaria. Total customer deposits accounted for 93% of the bank's non-equity funding at end-H111, most of which fall under the deposit insurance scheme in Bulgaria. Refinancing risk at the bank is low and liquidity is currently comfortable. However, a marked deterioration in asset quality might lead to instability in the deposit base.
Fitch will also consider whether downward revisions of any other bank Support Rating Floors in CEE are warranted. However, at present the Long-term IDRs of all non-state owned CEE banks, apart from FIBank, are underpinned by either their standalone strength (as reflected in the Viability Rating) or potential shareholder support. Therefore, any downward revisions of sovereign Support Rating Floors for other banks would not by themselves result in any downgrades of Long-term IDRs.
The rating actions are as follows:
Long-term IDR: 'BB-': placed on RWN
Short-term IDR: affirmed at 'B'
Viability Rating: unaffected 'b+'
Individual Rating: unaffected 'D'
Support Rating: '3': placed on RWN
Support Rating Floor: 'BB-': placed on RWN
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 16 August 2011, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Banu Cartmell, +44 20 3530 1109
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Keranka Dimitrova, +44 20 3530 1223
James Watson, + 7 495 956 6657
Peter Fitzpatrick, London, +44 20 3530 1103