Fitch Ratings have today announced a one notch downgrade in the Long Term Issuer Default Rating of Bank of Valletta plc. The new rating is of BBB, with a stable outlook.
The rating agency affirms that BOV's rating is driven by its intrinsic strength, and that its profitability benefits from "sound core revenues generated from its commercial business activities, good operating efficiency and contained loan impairment charges". The short term rating, which has been confirmed at 'F2', is underpinned by the Bank's "robust funding and liquidity", its stable deposit base and improving loan-to-deposits ratio.
Fitch acknowledges that the Bank's stock of impaired loans is decreasing, and is well covered by provisions, but comments that the level remains higher than average in similar environments.
The agency goes on to state that the Bank's capital levels have to be viewed in a context of increasing regulatory requirements and the expected negative impact of the new financial reporting standard IFRS 9. The agency also opines that the Bank's use of the standardised approach to determining risk weights may lead to the underestimation of certain risks, such as operational and market risk.
Bank CEO Mario Mallia explained that the downgrade in the long term rating is driven by Fitch's view that the Bank needs to increase its capital levels, in an environment of rising regulatory requirements. The Bank has, in fact, already made public its intention to strengthen its capital buffers, through a combination of fresh capital issues, restrained dividend payouts and the review of the business model.
The CEO concluded by reaffirming the Bank's commitment towards strengthening its levels of capital, as well as its risk management framework. "We have started by beefing up our subordinated debt capital, and are now addressing core equity. We are also putting into place a robust Risk Appetite Framework, and building up from scratch a strong and well-resourced Anti-Financial Crime function.
At the same time, we are withdrawing from traditional businesses which lie outside our current risk appetite. We are also addressing legacy issues that involved the bank in undue legal and reputation risk. These are the measures we are taking today to ensure the future of BOV as a strong, stable and well-capitalised institution."