S&P Cuts Bulgarian American Credit Bank Rating

Standard and Poor's said it lowered the long-term rating of Sofia-based Bulgarian American Credit Bank to B+ from BB- and affirmed the bank's short-term rating at B.

The outlook is negative.

"The downgrade results from our view of the continued deterioration in BACB's loan portfolio in 2010, and our view that the bank's asset quality is likely to remain under pressure in light of the still-tough market conditions in the Republic of Bulgaria (BBB/Stable/A-3)," Standard & Poor's (S&P) credit analyst Austen Koles-Boudreaux said in a statement.

"The negative outlook reflects our view that the difficult operating environment in Bulgaria is likely to pressure BACB's asset quality and financial performance, particularly given the bank's concentrated exposure to the domestic real estate sector and local SMEs," Koles-Boudreaux said.

The bank's loan portfolio is concentrated in the domestic real estate and construction sector, which S&P views as higher risk, and which has resulted in strong credit deterioration.

S&P also said:

"By March 31, 2010, non performing loans (90 days or more overdue) at BACB had increased to 12.5% of the loan portfolio (compared with 9.6% on Dec. 31, 2009, and 5.8% at the previous year-end), with total classified loans now representing almost 40% of total lending.

Asset quality deterioration follows sustained growth in the loan portfolio in the years up to 2008, and reflects the significant concentrationof BACB's credit exposures toward the real estate development and construction, tourism, and mortgage sectors, which have been particularly affected by the domestic downturn. credit risks are high and, in our view, only partly mitigated by the bank's good knowledge of its customer base, close monitoring, and active workout of problem loans.

The ratings on BACB continue to factor in the bank's niche franchise focused on secured lending to small- and medium-sized enterprises (SMEs) in Bulgaria, its concentrated loan portfolio, deteriorating asset quality indicators, and structurally high liquidity risk profile. The ratings also reflect BACB's strong capitalization and traditionally high profitability, as well as the bank's ownership by, and financial support received from, its main shareholder, Allied Irish Banks PLC (AIB; A-/Negative/A-2).

Downward pressure on the ratings would result from a further deterioration in asset quality and increase in provisioning requirements that resulted in a financial loss meaningfully eroding capitalization. Evidence of liquidity and/or cash flow strain would also weigh on BACB's ratings. Weakening support from AIB would, in turn, likely lead us to remove the one-notch uplift in the ratings on BACB.

We could revise our outlook on BACB to stable if the market environment in Bulgaria were to improve and pressure on the bank's financial profile were to ease, particularly regarding asset quality. Improved granularity and diversification in the loan portfolio would be positive for the ratings on BACB, as would reduced dependence on wholesale funding."

We need your support so Novinite.com can keep delivering news and information about Bulgaria! Thank you!