Fitch affirms Andhra Bank`s AA+(ind)/F1+(ind) national ratings
Fitch affirms Andhra Bank`s AA+(ind)/F1+(ind) national ratings
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Leading credit rating agency, Fitch Ratings on September 5 affirmed Andhra Bank`s (AB) national long-term rating at `AA+(ind)`, term deposit rating at `tAAA(ind)` national short-term rating at `F1+(ind)`, individual rating at `C/D` and support rating at `4`. At the same time, the agency also affirmed the rating of its Rs 7.4 billion subordinated debt programme at `AA+(ind)` and assigned a `F1+(ind)` rating to its Rs 15 billion certificates of deposit programme. The outlook is stable.
>The ratings reflect AB`s consistently above-average financials among India`s government banks. The ratings also reflect its predominately regional presence and moderate size.
AB`s asset quality ratios have remained among the best for government banks due its sustained focus on recoveries and aggressive provisioning and write-offs. After decreasing for three years, the bank`s gross NPL ratio increased slightly to 1.5% in Q108 (FYE07: 1.4%) due to rising interest rates. AB`s high loan loss coverage (86.3%) and increased general provisions provide cushion against a deterioration in asset quality. AB`s pre-provision operating profit increased almost 30% in FY07 and further 20% in Q108 on the back of loan growth. While the bank`s ROA and net interest margin (NIM) have remained better than that of peer banks due to its strong franchise among regional small and medium industries, its NIM is expected to be under pressure due to an increased cost of borrowings.
The total capital adequacy ratio reduced to 11.3% at FYE07 from 14% at FYE06, due to a 26% growth in loan portfolio. While AB`s Tier 1 ratio (10% at FYE07) and available headroom to raise hybrid and subordinated debt remains higher than that of other government banks, its ability to raise further equity is limited given the 51.6% government s take in the bank (regulatory minimum: 51%). The bank will adopt Basel II (standardised approach for credit risk and the basic indicator approach for operational risk) from FY09. The additional capital charge for operational risk could reduce reported capital adequacy ratio by 120 basis points.
AB is a mid-sized government bank with a market share of close to 1.5% of system deposits. The government diluted its 100% shareholding in February 2001 and the bank is listed in national bourses. Its network of 1,289 branches and over 500 ATMs is concentrated in southern India.
Shares of the company unchanged to end at Rs 91.05. The total volume of shares traded was 652,162 at the BSE.(Friday)
