Singapore, December 13, 2018 -- Moody's Investors Service has affirmed the long term, local
and foreign currency bank deposit ratings of Syndicate Bank at Baa3.
The short term, local and foreign currency bank deposit ratings
of Syndicate Bank were affirmed at Prime-3.
Moody's also affirmed the long term foreign currency senior unsecured
rating of Syndicate Bank's London Branch at Baa3.
The Baseline Credit Assessment (BCA) and adjusted BCA of Syndicate Bank
were also affirmed at ba3.
In addition, the long term foreign currency senior unsecured MTN,
subordinate MTN, and junior subordinate MTN ratings for Syndicate
Bank and its London Branch were affirmed at (P)Baa3, (P)Ba3,
and (P)B1 respectively.
The long and short term counterparty risk assessment for both Syndicate
Bank and its London Branch were affirmed at Baa3(cr)/Prime-3(cr)
respectively.
At the same time, the long and short term local currency counterparty
risk rating for both Syndicate Bank and its London Branch were affirmed
at Baa3/Prime-3 respectively.
Moody's also assigned a long and short term foreign currency counterparty
risk rating for both Syndicate Bank and its London Branch at Baa3/Prime-3
respectively.
The outlook, where applicable, for both Syndicate Bank and
its London Branch was maintained at stable.
The list of affected ratings is provided at the end of this press release.
RATINGS RATIONALE
The affirmation of Syndicate's ratings was driven by Moody's
expectation of improving capital and stabilizing asset quality,
albeit from a weak base, but balanced by weak profitability as credit
costs remain elevated. We maintain our assumption of a very high
probability of government support, given the systemic importance
of public sector banks and the track record of capital infusions by the
government.
Syndicate's Common Equity Tier 1 (CET1) ratio was one of the weakest
compared to other rated public sector banks at 6.0% as of
30 September 2018. Factoring in the receipt of INR7.28 billion
in capital from the government's infusion on 16 November 2018,
Syndicate's CET1 ratio would be higher at 6.5%.
We expect that a combination of additional capital from the government
and a reduction in risk-weighted assets would support Syndicate's
capitalization. However, if Syndicate does not receive additional
capital from the government so as to meet the minimum CET1 ratio (after
factoring in capital conservation buffer) of 7.375% by March
2019, there would be negative pressure on the bank's BCA.
Although Syndicate's asset quality is weak on an absolute basis,
we expect it to stabilize supported by resolutions from accounts under
the National Company Law Tribunal (NCLT). Syndicate's gross
NPL ratio continued to increase in the past few quarters, to 13.0%
as of September 2018 from 9.4% as of September 2017.
The bank's net NPL formation rate also remained higher compared
to other public sector banks, due to slippages from the agriculture
and Micro, Small and Medium Enterprise (MSME) segments. However,
recoveries of large non-performing loan (NPL) accounts from the
NCLT resolution process will result in a lower net NPL formation going
forward compared to the peak in fiscal 2018. Moody's also
notes that Syndicate has increased its provisioning coverage ratio on
a reported basis, to 64.0% as of September 2018 from
56.2% as of the previous year, which will allow it
to absorb potential losses.
Syndicate's overall profitability was one of the weakest among our
rated public sector banks in the first half of fiscal 2019. The
bank's return on assets (annualized) was -1.9%.
The decline in profitability was due to: 1) Lower non-interest
income from significantly lower trading gains due to the rise in government
bond yields, 2) Elevated credit costs due to provisioning requirements
on non-performing loans, and 3) additional provisioning on
mark-to-market losses on investments. We expect profitability
to be weak in the next 12-18 months due to elevated provisioning
requirements and a decline in core profitability.
Nevertheless, Moody's expect government support to remain
very high, given the systemic importance of public sector banks
as a whole. The most recent capital infusion is an indication of
the willingness of the government to inject capital to ensure that the
bank continues as a going concern. Syndicate has received government
capital in each of the past three fiscal years, and Moody's
expect the support from the Government to continue. This results
in a three notch uplift to the bank's BCA of ba3 in arriving at
the bank's Baa3 long-term deposit rating.
FACTORS THAT COULD LEAD TO AN UPGRADE
Syndicate's ratings could be upgraded if the bank is able to improve its
profitability on a sustained basis or if its capital strengthens significantly
through an external capital infusion such that its BCA goes up by more
than one notch.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Syndicate's ratings could be downgraded if the expected capital
infusion from the government does not materialize.
Syndicate's ratings could be downgraded if sustained weakness in profitability
worsens the bank's capitalization and if the extent of asset quality deterioration
worsens due to further stress from the agriculture and MSME segments.
Any indication of government support diminishing below Moody's expectation
could also lead to a downgrade of the bank's ratings.
Syndicate Bank, headquartered in Bangalore, reported total
assets of INR3.1 trillion ($43 billion) as of 30 September
2018.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
List of affected ratings:
..Issuer: Syndicate Bank
Long and short term Counterparty Risk Assessment, affirmed
at Baa3(cr)/Prime-3(cr)
Long and short term Counterparty Risk Rating (Local Currency),
affirmed at Baa3/Prime-3
Long and short term Counterparty Risk Rating (Foreign Currency),
assigned at Baa3/Prime-3
Baseline Credit Assessment, affirmed at ba3
Adjusted Baseline Credit Assessment, affirmed at ba3
Long term Deposit Rating (Local and Foreign Currency),
affirmed at Baa3
Short term Deposit Rating (Local and Foreign Currency),
affirmed at Prime-3
Long term Senior Unsecured MTN Rating (Foreign Currency),
affirmed at (P)Baa3
Long term Subordinate MTN Rating (Foreign Currency), affirmed
at (P)Ba3
Long term Junior Subordinate MTN Rating (Foreign Currency),
affirmed at (P)B1
Outlook, where applicable, maintained at stable
..Issuer: Syndicate Bank, London Branch
Long and short term Counterparty Risk Assessment, affirmed
at Baa3(cr)/Prime-3(cr)
Long and short term Counterparty Risk Rating (Local Currency),
affirmed at Baa3/Prime-3
Long and short term Counterparty Risk Rating (Foreign Currency),
assigned at Baa3/Prime-3
Long term Senior Unsecured Rating (Foreign Currency), affirmed
at Baa3
Long term Senior Unsecured MTN Rating (Foreign Currency),
affirmed at (P)Baa3
Long term Subordinate MTN Rating (Foreign Currency), affirmed
at (P)Ba3
Long term Junior Subordinate MTN Rating (Foreign Currency),
affirmed at (P)B1
Outlook, where applicable, maintained at stable
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Srikanth Vadlamani
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
