December 15, 2017 / 3:46 PM / a year ago

Fitch Affirms Islandsbanki hf at 'BBB'/Stable

(The following statement was released by the rating agency) LONDON, December 15 (Fitch) Fitch Ratings has affirmed Islandsbanki hf's Long-Term Issuer Default Rating (IDR) at 'BBB', Short-Term IDR at 'F3' and Viability Rating (VR) at 'bbb'. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The ratings of Islandsbanki reflect its leading domestic universal banking franchise, with market shares of around 30% in lending and deposits, its satisfactory asset quality, stable liquidity position and high reported capital ratios. The ratings also reflect the bank's operating environment in the small Icelandic economy that is vulnerable to domestic or international economic shocks. Management has a focussed strategy targeting organic growth in Iceland. Lending abroad is limited to below 5% of assets and currently forms around 2% of loans. The risk management framework is sound, and we expect the strong growth of the Icelandic economy to continue to support the bank's asset quality. Islandsbanki's asset quality has consistently improved since 2010. Non-performing loans, which include 90 days past due loans that are not impaired, were a low 1.9% at end-September 2017, down from 3.4% at end-2016. A significant portion of the loan book has been restructured in the last 10 years and is now in performing status. Islandsbanki's capital ratios are solid by international comparison. At end-September 2017 the Fitch Core Capital/ risk weighted assets (FCC) ratio was 22.6% and the common equity Tier 1 ratio was 22.5%. This reflects strict regulatory requirements (minimum 14.9% common equity Tier 1 and 19.8% total capital ratios) to offset the risks inherent to operating in a small and potentially volatile economy. Leverage is also strong, with a Basel III leverage ratio of 15.3% at end-September 2017. We expect the bank's capital ratios to fall over the medium term, but that Islandsbanki will maintain sound buffers on top of its minimum requirements. Some parts of common equity will be replaced with subordinated debt as the bank prepares for its privatisation. Earnings are adequate, with an operating profit/ risk weighted assets ratio of around 2%-2.5% in the past four years, supported by releases of impairment reserves. We expect loan impairment charges to normalise, but to remain low in the benign environment. The fairly modest size of the bank, a consequence of the small size of its operating market, means that cost efficiency is highly sensitive to revenue-generating capacity, in particular in light of necessary IT and digital-related investments. Islandsbanki's funding is generally stable. The bank has rebuilt its access to international wholesale funding markets, most recently issuing a SEK750 million Tier 2 bond. Liquidity is prudently managed, and the bank maintains a large liquidity buffer (over 20% of total assets at end-September 2017) to absorb potential shocks. Deposit outflows following the lifting of capital controls in March have thus far been limited. We expect deposits to remain the largest funding source. The loans-to-deposits ratio was an adequate 128% at end-September 2017. SUPPORT RATING AND SUPPORT RATING FLOOR Islandsbanki's '5' Support Rating (SR) and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's view that senior creditors cannot rely on receiving extraordinary support from the sovereign in the event of the bank becoming non-viable, given the track record of the sovereign in imposing losses on bank creditors. In addition, we view it likely that Iceland will eventually adopt legislation in line with the EU's Bank Recovery and Resolution Directive. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT Positive rating action could arise from demonstrated resilience of the Icelandic operating environment to a slowdown or external shocks, combined with the bank maintaining its moderate risk appetite, satisfactory asset quality and conservative approach to capital and liquidity management. The ratings could come under pressure if Islandsbanki adopts a higher risk appetite, particularly in light of its future privatisation, for example through loosening underwriting standards or expansion overseas. Aggressive capital or liquidity management, or a significant shock to the economic environment leading to asset-quality deterioration would also be rating- negative. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the SR or upward revision of the SRF would be contingent on a positive change in Iceland's propensity to support domestic banks, which Fitch views as highly unlikely. The rating actions are as follows: Long-Term IDR affirmed at 'BBB'; Outlook Stable Short-Term IDR affirmed at 'F3' Viability Rating affirmed at 'bbb' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Senior unsecured debt long-term rating affirmed at 'BBB' Senior unsecured debt short-term rating affirmed at 'F3' Contact: Primary Analyst Konstantin Yakimovich Director +44 203 530 1789 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Gurminder Bawa Director +44 20 530 1787 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 44 29 91 74 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below