Moody’s confirms Mauritius Commercial Bank’s deposit ratings at Baa3
Moody’s expects that MCB will manage the capital allocation within the new group structure in a manner that will not be detrimental to the rated entity’s core capital base. (Image: 60minutos.mx)
Moody’s Investors Service has confirmed last Friday February 20, 2015, Mauritius Commercial Bank Limited’s (MCB) long-term and short-term deposit ratings at Baa3/Prime-3.
Concurrently, Moody’s has confirmed the bank’s standalone bank financial strength rating (BFSR) of D+, equivalent to a ba1 baseline credit assessment (BCA). All long-term ratings and the BFSR carry a stable outlook.
According to Moody’s Investors Service the confirmation of MCB’s ratings is driven namely by the improvement in core capitalisation and the bank’s intention to maintain capital metrics at levels reported prior to the group’s restructuring; and the recent stabilisation in asset quality combined with strong earnings growth.
Furthermore, the primary driver of the ratings confirmation is MCB’s efforts to strengthen its capital buffers, following a reduction in capital triggered by the group’s restructuring and involving the transfer of non-banking and foreign banking subsidiaries from MCB to intermediary entities under the ultimate holding company MCB Group Ltd.
While the restructuring initially led to a reduction in MCB’s consolidated Tier 1 capital to 11% in June 2014, from 13% in June 2013, MCB’s pro-forma consolidated Tier 1 ratio increased to approximately 11.5% in December 2014, assuming full unbundling of its foreign subsidiaries, but including its affiliate ‘Banque Française Commerciale Ocean Indien’ that will be retained under the rated entity MCB.
In addition Moody’s also noted the bank’s intention to further enhance the ratio to levels reported prior to the group restructuring, better positioning MCB’s capital metrics relative to its similarly rated global peers.
Moody’s expects that MCB will manage the capital allocation within the new group structure in a manner that will not be detrimental to the rated entity’s core capital base.
On the other hand , the bank aims to comply with the fully loaded Basel III requirements well ahead of the implementation date of January 2020, stipulating a Tier 1 regulatory minimum of 10.5% plus an additional charge applicable to ‘D-SIBs’.
MCB’s rating confirmation also takes into account the stabilisation of its asset quality, with a reduction in the volume of non-performing loans (NPLs) in the second half of 2014.
This follows an increase in the level of NPLs in the previous fiscal year caused by Indian-related exposures.
As such, the bank’s gross NPLs-to-gross loans ratio declined to 6.1% in December 2014 from 7.1% in June 2014.
The easing of asset quality pressures was partly driven by the write-off of certain NPLs, while at the same time the bank has taken measures to strengthen its risk management framework and reduce its risk taking within its cross-border lending business.
In addition, MCB reported improved profitability metrics, with net profit in the fiscal first half 2014-15, increasing by around 22% year-on-year on the back of strong growth, 19.5% year-on-year, in net fees and commissions income.
The rating agency said that despite the 11% year-on-year increase in credit impairments, it expects MCB’s full-year credit impairments to be significantly lower than the figure reported for the bank’s fiscal year end 2013-14.
Such performance underpins MCB’s annualised return on average assets and return on average equity of 2.1% and 20.7%, respectively, as of December 2014, compared to 1.8% and 16.5%, respectively, as of June 2014. Moody’s expects MCB to continue its good earnings performance in the next 12-18 months, thereby supporting its ratings and strongly positioning the bank among its similarly rated global peers.
MCB’s ratings carry a stable outlook reflecting the rating agency’s expectation of further moderation in NPLs and continued asset and earnings growth without pressuring the bank’s capital base.
The deposit ratings assigned also incorporate Moody’s view of a high probability of government support in case of need, due to the bank’s systemic importance with around 40% market share in domestic deposits.
As a result, MCB’s deposit ratings of Baa3 continue to incorporate one notch of uplift from the bank’s standalone BCA of ba1.
About Moody’s Investors Service:
Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis. Moody’s commitment and expertise contributes to transparent and integrated financial markets. The firm’s ratings and analysis track debt covering approximately 130 sovereign nations, 11,000 corporate issuers, 21,000 public finance issuers, and 76,000 structured finance obligations. Moody’s Investors Service is a subsidiary of Moody’s Corporation