Fitch Puts Bulgaria's First Investment Bank on Rating Watch Negative

The headquarters of First Investment Bank in the capitals Sofia. Photo by Sofia Photo Agency

Fitch Ratings has placed Bulgaria's First Investment Bank AD's long-term issuer default rating, support rating and support rating floor on its watch negative.

The move 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, the agency said in a statement.

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 said.

If the Support Rating Floor is revised, the bank's Long-term Issuer Default Rating 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.

The agency warns that even though refinancing risk at the bank is low and liquidity is currently comfortable, a marked deterioration in asset quality might lead to instability in the deposit base.

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