Fitch Upgrades First Investment Bank

On 7 July 2017 Fitch ratings raised Fibank’s Long-Term Issuer Credit rating (IDR) by one notch from ‘B-‘ to ‘B’ with a Stable Outlook as well as the bank's Viability Rating (VR) from ‘b-‘ to ‘b’. Please recall, that couple of days earlier Moody's Investors Service (Moody's) assigned first time B1 long-term local and foreign currency deposit ratings to the bank. In Fitch’s view, the rating upgrade mainly reflects the stabilisation of the bank’s asset quality metrics, improvements in risk management framework, and a reduction in risk appetite. The credit agency expects reported asset quality ratio to improve over 2017, due to the limited inflow of new impaired loans, modes growth of new lending and moderate clean-up of the impaired loan stock through work-outs and write-offs. The VR also reflects the fall in the unreserved impaired exposures, improved capitalization and improved loss absorption capacity through recurring profit generation and it is backed by the stable funding based on diversified retail depositors base and healthy liquidity. Granular, mostly retail customer deposits accounted for 96% of total funding at end-2016. The growth of customer deposits in both 2015 and 2016 suggests that FiBank's deposit franchise has recovered from the turbulence that resulted in state liquidity support in 2014, which was fully repaid in 2016. Loss absorption is enhanced by BGN210 of Basel 3 compliant AT1 securities included in regulatory Tier 1 capital. Capital buffers above Tier 1 regulatory minimum were moderate at end-2016, but will increase by around 160bp following the inclusion of 2016 profit. FiBank returned to operating profitability as a result of strong interest rate margin (around 5%), respectable cost efficiency (49% cost/income ratio) and moderate impairment charges (around 260bsp of average gross loan in 2016 compared to 520bps for 2015). A further upgrade of FiBank would require faster resolution of legacy impaired loans, a reduction of loan book concentrations and monetisation of repossessed assets without denting its capitalisation, and a longer record of sound profitability. Deterioration in the operating environment, which would result in a substantial inflow of new bad debt and capital erosion at the bank, could lead to a downgrade of its VR.