Fitch Ratings has downgraded the First International Bank of Israel's (FIBI) long-term rating to BBB from BBB+, its short-term rating to F3 from F2 and its Individual rating to D from C/D. The outlook is changed to negative from stable. FIBI's support rating of 4 is affirmed.
The downgrade reflects the strong pressure placed on FIBI's performance and asset quality since early 2002 by the depressed economy. This has highlighted the lack of diversification in FIBI's loan book and revenue base, two features that the bank has been trying to address in recent years. It also takes into account FIBI's tight capitalization by international standards.
The negative outlook reflects uncertainties regarding FIBI's performance and asset quality in an economy that has not yet shown any tangible sign of recovery. FIBI's core businesses are corporate banking for high credit quality Israeli companies and financial services for high net worth individuals.
Like all Israeli banks, FIBI has suffered from the recession. However, unlike for some other large Israeli banks, FIBI's retail banking franchise with individuals has recently proved too limited to offset an exceptionally high provisioning charge against a few corporates. This led FIBI to post its first net loss ever in the first quarter of 2002, and a total loss of 101 million Israeli shekels ($23.1 million) in the first nine months of 2002.
Although around half of the bank's pre-tax loss of NIS 146 million over the period was attributable to technical/accounting adjustments, these disappointing results were mainly the result of high loan loss provisioning, showing that FIBI's loan book and profitability remain too dependent on the fortunes of the telecommunications sector.
While FIBI's asset quality has historically been better than average, it has suffered a lot from the deterioration in this sector and is now below that of its peers, with net non-performing loans accounting for over four percent of the loan book.
FIBI's total capital/weighted risks ratio as per Israeli regulations was 9.6 percent at end-September 2002. While good by Israeli standards, this is low in international terms, bearing in mind that 60 percent of equity covers non-performing loans that are not provided against.
While FIBI remains a well managed bank, its fortunes in the medium term look unpredictable as they will depend on the economy and its impact on the bank's provisioning charge. On the positive side, FIBI's share of the household market has been increasing to around five to six percent and success in increasing commission income and reducing non-interest expenses means that FIBI's cost to income ratio has not deteriorated significantly despite the recessionary environment. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
