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Moody's downgrade
Moody’s has downgraded SBI’s standalone credit rating from C- to D+
that also leads to downgrade in rating on the hybrids; overall ratings are
stable at Baa2, a notch above sovereign rating. Rating has been lowered
due to SBI’s low Tier I CAR and high stressed assets. This may increase
cost of raising fresh hybrids and indirectly be priced into SBI’s fresh MTN
and deposit raising. Rise in CDS spreads may increase cost of re-financing
wholesale debt and impact profitability of overseas business, but rise in
corporate spreads can help to cushion the impact on earnings. We don’t
expect downgrade to get extended to many other banks as most of them
are well capitalised and have stronger asset quality. Maintain U-PF.
Moody’s downgrades standalone rating of SBI
Moody’s has downgraded SBI’s Bank Financial Strength Rating (BFSR or stand
alone rating) from C- to D+. The revised rating maps to downgrade in the (1)
baseline credit assessment (BCA) from Baa2 to Baa3 and (2) fall in hybrid
debt rating from Ba3 to Ba2. This downgrade reflects on agency’s concerns on
banks’ capital situation and deteriorating asset quality. Moody’s has stated
that in a scenario of rising rates and slower economic growth, SBI may report
asset quality pressures and its tier 1 CAR of 7.6% provides insufficient
cushion to support growth and absorb potentially higher credit costs.
Does it lead to downgrade of other banks?
Currently, Moody’s has stable outlook on most Indian banks; among covered
banks it holds a negative outlook on OBC. We believe the SBI downgrade may
not necessarily trigger downgrade of all other Indian banks and this would
primarily depend on individual bank’s tier 1 ratio and asset quality. Private
banks are much better placed due to higher tier 1 CAR and lower proportion
of stressed loans (figure 3). Downgrade and rise in overseas funding costs
would impact banks with sizable overseas operations more than others (see
figure 4). Management believes that capital infusion, through rights issue, is
likely in 3Q/4Q FY12 and should help to restore credit ratings.
What will be the earnings impact?
SBI could see rise in cost of its overseas funding due to downgrade in ratings
of hybrids and indirect impact of cut in standalone ratings. Over past few
months, SBI and ICICI have seen expansion in spreads on CDS by 200-
270bps reflecting global risk aversion, however the sharp rise in corporate
spreads (lending) should help to defend pressure on profitability. We maintain
our U-PF rating on SBI on the back of asset quality concerns and see better
risk-reward balance for banks with higher ROA, well capitalised balance
sheets and stronger asset quality.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Moody's downgrade
Moody’s has downgraded SBI’s standalone credit rating from C- to D+
that also leads to downgrade in rating on the hybrids; overall ratings are
stable at Baa2, a notch above sovereign rating. Rating has been lowered
due to SBI’s low Tier I CAR and high stressed assets. This may increase
cost of raising fresh hybrids and indirectly be priced into SBI’s fresh MTN
and deposit raising. Rise in CDS spreads may increase cost of re-financing
wholesale debt and impact profitability of overseas business, but rise in
corporate spreads can help to cushion the impact on earnings. We don’t
expect downgrade to get extended to many other banks as most of them
are well capitalised and have stronger asset quality. Maintain U-PF.
Moody’s downgrades standalone rating of SBI
Moody’s has downgraded SBI’s Bank Financial Strength Rating (BFSR or stand
alone rating) from C- to D+. The revised rating maps to downgrade in the (1)
baseline credit assessment (BCA) from Baa2 to Baa3 and (2) fall in hybrid
debt rating from Ba3 to Ba2. This downgrade reflects on agency’s concerns on
banks’ capital situation and deteriorating asset quality. Moody’s has stated
that in a scenario of rising rates and slower economic growth, SBI may report
asset quality pressures and its tier 1 CAR of 7.6% provides insufficient
cushion to support growth and absorb potentially higher credit costs.
Does it lead to downgrade of other banks?
Currently, Moody’s has stable outlook on most Indian banks; among covered
banks it holds a negative outlook on OBC. We believe the SBI downgrade may
not necessarily trigger downgrade of all other Indian banks and this would
primarily depend on individual bank’s tier 1 ratio and asset quality. Private
banks are much better placed due to higher tier 1 CAR and lower proportion
of stressed loans (figure 3). Downgrade and rise in overseas funding costs
would impact banks with sizable overseas operations more than others (see
figure 4). Management believes that capital infusion, through rights issue, is
likely in 3Q/4Q FY12 and should help to restore credit ratings.
What will be the earnings impact?
SBI could see rise in cost of its overseas funding due to downgrade in ratings
of hybrids and indirect impact of cut in standalone ratings. Over past few
months, SBI and ICICI have seen expansion in spreads on CDS by 200-
270bps reflecting global risk aversion, however the sharp rise in corporate
spreads (lending) should help to defend pressure on profitability. We maintain
our U-PF rating on SBI on the back of asset quality concerns and see better
risk-reward balance for banks with higher ROA, well capitalised balance
sheets and stronger asset quality.
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