International rating agency Moody's Investors Service has affirmed Orient Express Bank's long-term local currency and foreign currency deposit ratings, and also senior unsecured debt rating at Caa1. The outlook for these ratings was revised from negative to stable, the agency specified in a press release.
The bank's short-term local currency and foreign currency deposit ratings were affirmed at Not Prime, BCA and adjusted BCA at caa1. On balance, the outlook for the bank was also raised from negative to stable.
The lender's long-term and short-term CRAs were affirmed at B3(cr) and Not Prime(cr), respectively.
The stabilization of the outlooks for Orient Express Bank reflects improvements in the bank's asset quality (a decrease of bad loans) and its profitability. Moody's expects these trends to persist in 2017. At the same time, the ratings take into account risks associated with deterioration of the bank's financial performance as a result of its merger with Uniastrum Bank in late January 2017. Analysts specified that as of January 1, 2017 Uniastrum Bank assets accounted for around 60% of Orient Express Bank's total assets prior to the merger.
Despite additional loan loss provisions that the merged bank needs, Moody's expects the bank to post moderate profit in 2017. The agency believes that over the next 12-18 months Orient Express Bank will be able to cut administrative costs by 20-25% compared to the aggregate indicator of the two merged banks. Credit losses in 2017, as Moody's thinks, will total roughly 7% of the credit portfolio.
One of Orient Express Bank's main rating caps are modest capital adequacy ratios (6.96% for core capital and 9.06% for total capital as of February 1, 2017 against the regulatory minimum ratios of 6% and 8%, respectively). These levels are viewed as much weaker due to the substantial amount of non-core assets that Orient Express Bank got during the merger with Uniastrum Bank. These assets are mainly land plots, accounting for nearly a third of the merged bank's equity. If their market value drops, this will exert a tangible adverse impact on the bank's capital indicators, Moody's warns.
