Fitch confirmed the negative outlook for a bank that Borissov helped with millions – World

Almost a year after the government of Prime Minister Boyko Borissov hastily decided that the state-owned Bulgarian Development Bank (BDB) will participate with nearly BGN 140 million in the capital increase of First Investment Bank (FIB), the rating agency Fitch announced that it confirms the current rating and negative outlook for the private bank.

The main goal of the state to take just under 19% share of Fibank in June 2020 was considered to be the removal of the last obstacle to the invitation to Bulgaria to join the ERM II mechanism and the banking union. But in November, Fitch gave it a B rating (five levels below the investment grade threshold and seven below Bulgaria’s rating) with a negative outlook, which confirms and this week – on May 25.

Also B, but with a stable outlook, was the rating of August 13, 2019, and the confirmation of the now negative outlook from the fall of 2020 means by Fitch standards that there will be almost certain improvement in the assessment of this Bulgarian bank. by the end of next year.

Fibank remained outside the group of Bulgarian banks, which has been monitored by the European Central Bank since October 1 – the BNB continued to do so. A comparison with the November 2020 report on Fitch’s valuation shows that there is no significant improvement in the private bank saved with Bulgarian taxpayers’ money. The rating agency is repeating problems with the bank, which they pointed out last fall.

Whether and when Bulgaria (BBB rating with a positive outlook) will enter the euro area depends not on the state of Fibank, but on the much more important issue that “it has yet to show progress in fulfilling its structural commitments before it is adopted and the goal is to becomes in January 2024 is beyond the horizon of our rating. “

On the bank’s website Fitch’s message is summed up in a single long sentence entitled “Fitch Ratings reaffirms Fibank ratings”

“The quality of Fibank’s assets is a weak point for the rating, reflecting the high accumulation of impaired loans, with a modest provision for provisions and a significant portfolio of collateral acquired,” the May 25 statement said. At the end of 2020, the consolidated loans granted by the bank, on which customer service was suspended or missed, were 22% of the gross loans, according to Fitch. To these the agency adds another 15% of the gross loans, which are in the category of increased risk and it is monitored whether and how much of them are serviced, albeit irregularly, or turn into bad loans.

• The provisioning ratio by Fibank (35%) of bad loans is well below the sector average of about 63%, according to Fitch. In the autumn, the agency said that the outlook could improve at bad credit levels steadily below 15% and coverage with provisions close to the average for the sector. The bank is clearly far from these thresholds.

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The bank’s bad and problem loans remain concentrated, hindering the effective resolution of accumulated problem loans, especially since loan loss provisions are low, the agency added. “The quality of the bank’s assets is further reduced by the high levels of concentrated collateral (mainly real estate), which represent 6.3% of total assets at the end of 2020,” the statement said.

Fitch explains that for Fibank, as for all banks in Bulgaria, there is uncertainty – and it will continue in the next 2 years – about the effect of the abolition of the moratorium on loan servicing introduced due to the pandemic.

As of the end of 2020, Fibank reports a Tier 1 capital ratio (CET1) of 17.7% (compared to 18.7% as of autumn 2020). ), and if the acquired collateral is added to the balance sheet, the amount becomes 130% of the bank’s capital (compared to 137% in the fall), say Fitch.

In our opinion, the bank may have to lose related to at least some of its net problem assets, the statement said. The Agency estimates that Fibank maintains reasonable liquidity and stability, but adds that although possible state support seems possible, such support cannot be relied on, including due to an EU directive introduced in Bulgarian legislation, according to which large creditors of a troubled bank must before the state or entirely instead of it to participate in the loss.

• • In conclusion from “Fitch” reminds factors that, individually or together, could lead to a downgrade for First Investment Bank. Among them are:
  • – deterioration of the quality of its assets due to bad loans, which are not adequately provisioned and without a clear perspective for quick recovery;
  • – inability to demonstrate significant progress in resolving the issue of distressed assets (including non-performing loans and acquired collateral)
  • – deterioration of the bank’s capital position due to low operating profits.

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This warning is in stark contrast to Boyko Borissov’s optimism a year ago, when he said at a government meeting: “It is important to know that Fibank will later buy back the shares with interest. It should be explicitly written down.” Then the Minister of Finance Vladislav Goranov tried to explain in more detail what the Council of Ministers will vote on, but the Prime Minister interrupted him with “The important thing is that we have to vote for him” and the millions in support of Fibank were approved without debate. The shares of the issue for raising additional funds were bought by BDB at a price about twice higher than the one at which they were traded on the stock exchange at that time.

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