(The following statement was released by the rating agency)
Jan 25 - Fitch Ratings has revised the Rating Outlooks for National Commercial Bank Jamaica Limited (NCBJ) to Negative from Stable and affirmed the long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B-'. A full list of rating actions follows at the end of this release.
The Outlook revisions on NCBJ’s IDRs are in line with a similar action that Fitch took on Jamaica’s sovereign ratings, given the bank’s exposure to the government of Jamaica and the potential for a more challenging operating environment.
The sovereign’s Outlook revision to Negative from Stable reflected Jamaica’s rising financing constraints in the context of elevated fiscal and external imbalances.
SENSITIVITY/RATING DRIVERS - VR & IDRs
NCBJ’s Viability Rating drives its long-term IDRs. The bank’s VR reflects its strong domestic franchise, solid profitability, and adequate capitalization. Nevertheless, NCBJ’s ratings remain constrained by the sovereign’s weak credit profile given high exposure to the Jamaican government, lending concentrations, as well as a challenging operating environment.
Investments and loans to the Jamaican government, public entities and entities with a Jamaican government guarantee continued to represent a high proportion of NCBJ’s total assets at 52%, or about 3 times (x) its equity, in the fiscal year ended September 2012 (FYE12). Fitch remains concerned about this high asset concentration given Jamaica’s low sovereign rating [Long-term Issuer Default Rating (IDR) of ‘B-’ with a Negative Rating Outlook].
Future rating actions will be highly contingent on a change in Fitch’s view of the sovereign given the bank’s sizable sovereign exposure. Additionally, a downgrade of the bank’s ratings could be driven by an unexpected marked deterioration of asset quality that weakens profitability or capitalization to a level that is no longer consistent with its current peers (emerging market commercial banks with a VR of ‘b-', ‘b’ or ‘b+').
The bank’s Support rating is constrained by the sovereign’s weak credit profile. However, the Support floor of ‘B-’ indicates Fitch’s view that NCBJ’s systemic importance makes the government’s propensity to support the bank high although its capacity may be weak.
NCBJ is the largest bank in the system in terms of assets with more than 40% market share of the commercial banking system in recent years. In 2002, the Jamaican government sold a majority stake in the bank to Advantage Investment Corporation (AIC), one of Canada’s largest privately held mutual fund management companies.
Fitch has affirmed NCBJ’s ratings as follows:
--Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B-'; Outlook revised to Negative from Stable;
--Short-term foreign and local currency IDR at ‘B’;
--Viability Rating at ‘b-’
--Support Rating at ‘5’;
--Support floor at ‘B-'.