On 18 December 2009, Fitch Ratings affirmed Malta-based FIMBank’s ratings at Long-term Issuer Default (IDR) ‘BB’, Short-term IDR ‘B’, Individual ‘C/D’ and Support ‘5’ with the outlook on the Long-Term IDR at Stable. Fitch announced that the rating reflects FIMBank’s small size and pressure on operating profitability following declining business volumes in line with the weakening global trade climate. The rating also factors the Bank’s exposure to counterparties in emerging and developing countries, and concentrations in the loan portfolio and funding base. The ratings also take into account FIMBank’s good management, acceptable asset quality and adequate capital ratios. Fitch stated that FIMBank’s 2009 half-year performance ratios improved despite continuing unrealized losses on the forfaiting book (driven by the Bank’s exposure to Ukrainian banks), lower trade finance business, inflexible operating costs and increased impairment charges on some old exposures. Given the difficult market conditions, Fitch is not anticipating a significant improvement in profitability for the second half of 2009.
The rating agency explained that while FIMBank’s appetite for credit risk is material, the Bank was able to adequately manage it to date. The Bank is significantly exposed to emerging markets through its lending, forfeiting books and securities portfolio; however the short-term nature of trade finance transactions related to the lending and forfeiting books mitigates country risk. FIMBank’s loan loss experience has been good, with impaired loans at 4% of gross loans and a reserve coverage ratio of 110% at the end of the second half of 2009. Fitch stated that it remains concerned with FIMBank’s residual exposure to Ukrainian and Kazahkstan banks through its forfaiting assets, bonds and credit-linked notes (all fully marked to market), which may further deteriorate in the future, although the bank is actively working at reducing this exposure. To date, FIMBank has already swapped most of its exposure to Kazakhstan’s banks for less risky exposures whilst no additional impairments will be booked by the bank in the second half of 2009 related to these swapped exposures.
Fitch continued by explaining that FIMBank’s funding is balanced between short-term interbank deposits and client deposits, with interbank deposits driven from FIMBank’s trade finance and correspondent bank counterparties. Concentration in the funding base is high, exposing FIMBank to some volatility risk. However, FIMBank’s liquidity remains adequate owing to the short-term nature of assets and liabilities, in addition to some 23% of assets invested in cash and other liquid items. With an eligible capital/risk-weighted assets ratio of 20.72% at the end of the second half of 2009, FIMBank’s capital ratio was adequate.