Singapore, January 20, 2012 -- Moody's Investors Service has affirmed Bank of Baroda's deposit
and debt ratings, with a stable outlook.
The detailed ratings affirmations are:
Local currency deposits: Baa2/P-2
Foreign currency deposits: Baa3/P-3
Foreign currency senior unsecured debt: Baa2
Foreign currency senior unsecured debt program: (P)Baa2
Foreign currency subordinated debt: Baa3
Foreign currency subordinated debt program: (P)Baa3
Foreign currency junior subordinated debt program: (P)Ba1
Bank of Baroda's Baa3/P-3 foreign currency deposit ratings
are constrained by the sovereign ceiling for foreign currency deposits.
The foreign currency debt ratings are assigned to the London branch of
Bank of Baroda for where it issues this debt under its medium-term
notes program.
Moody's has also affirmed the bank's D+ bank financial
strength rating (BFSR), mapping to a baseline credit assessment
(BCA) of Ba1, with a stable outlook.
"The affirmation of Bank of Baroda's deposit and debt ratings,
and stable outlook, reflects the bank's significant franchise with
growing market share, stable asset quality, as well as its
strong liquidity position and income profiles," says Vineet
Gupta, a Moody's Vice President and Senior Analyst.
Bank of Baroda's profitability indicators are strong, and
compare well with other Baa2-rated public-sector banks.
At end-March 2011, its recurring earnings power (pre-provision
income/average risk weighted assets) was strong at 3.8%,
and the return on average risk-weighted assets was also strong
at 2.32%.
The bank's earnings profile has been maintained in the six-month
period, ending September 2011.
"After factoring in the advantages of cost efficiency and stable
fee income, and despite pressures on net interest margins due to
an increase in the costs of funds, strong recurring earnings should
continue," says Gupta.
"The possible downside to this expected scenario could emerge if
the bank suffers significant asset quality or franchise deterioration,
but which we do not believe is likely."
Asset quality indicators are stable, and compare well with other
Baa2-rated public-sector banks. Its gross non-performing
loan (NPL) ratio was stable at 1.4% at end-September
2011 (1.36% at end-March 2011), and net NPLs
were below 0.5%.
Provisioning cover is adequate at 66%, although it has declined
from 75% at end-March 2011. The bank's credit
portfolio is well-diversified, with no individual sector
exceeding 6% of total credit exposures.
"Over the next few quarters, given the challenges in its operating
environment and expected vulnerability in the infrastructure portfolio
(power and telecom), the bank's asset quality indicators could
experience some deterioration. However, we do not expect
this deterioration to be strong enough to negatively impact the ratings,"
says Gupta.
The bank's capitalization levels improved at end-March 2011,
driven by strong internal capital generation and an equity infusion of
INR24.61 billion from the Indian government. The bank's
core Tier 1 capital ratio is adequate at 8.5%, enabling
it to grow further and to meet the proposed draft Basel III guidelines.
The bank also expects to receive another equity infusion in FY2012,
which would take the government's share to 58% from its current
57%.
Bank of Baroda has adequate liquidity, driven by its strong retail
franchise and mandatory government securities portfolio. Its liquidity
position is comparable to other Baa2-rated Indian public-sector
banks.
The bank's D+ BFSR could be upgraded if it reduces its annual
NPL formation rate to below 1%, and strengthens its core
Tier 1 capital to over 10%.
The supported ratings -- Baa2 senior debt and Baa2/P-2 local
currency deposit rating -- are already at the country ceilings.
The constrained Baa3/P-3 foreign currency deposit rating would
be upgraded if the country ceiling were revised upwards.
The bank's BFSR is at the lower end of D+, which provides
a significant cushion on its asset quality, capitalization,
and profitability indicators. However, if the bank were to
face significant deterioration in its capitalization levels or asset quality,
its BFSR could come under pressure.
The supported ratings -- Baa2 senior debt ratings,
Baa3 subordinated debt, and (P)Ba1 junior subordinated debt program
-- would be lowered if the support assumptions on these
debt instruments changed.
The principal methodologies used in rating Bank of Baroda were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology published in March 2007 and Moody's Guidelines for
Rating Bank Hybrid Securities and Subordinated Debt published in November
2009. Please see the Credit Policy page on Moodys.com for
a copy of these methodologies.
Bank of Baroda, headquartered in Mumbai, had assets of INR
3,584 billion as of 31 March 2011.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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
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uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
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Please see Moody's Rating Symbols and Definitions on the Rating
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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.
Vineet Gupta
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
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Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
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Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's affirms ratings and outlook of Bank of Baroda
