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Rating Action:

Moody's assigns first-time Ba3 ratings to Eastern Bank

Global Credit Research - 21 Mar 2016

NOTE: On April 26, 2016, the press release was corrected as follows: In the third sentence, the phrase “Local and foreign currency deposit ratings of Ba3/NP” was changed to “Local currency deposit ratings of Ba3/NP; Foreign currency deposit ratings of B1/NP”. In the “Ratings Rationale” section, the following phrase was added to the first paragraph: “However, its foreign currency deposit rating remains positioned at B1 because Bangladesh’s foreign currency deposit ceiling is capped at that level”. In the “summary of Eastern Bank's first-time ratings” section, the phrase “- Ba3 local currency and foreign currency long-term deposit ratings; outlook stable “ was changed to “Ba3 local currency long-term deposit ratings; outlook stable, B1 foreign currency long-term deposit ratings; outlook stable”. Revised release follows.

Singapore, March 21, 2016 -- Moody's Investors Service has assigned the following first-time ratings to the Bangladesh-based Eastern Bank Limited:

• Global local and foreign currency issuer ratings of Ba3/NP;

• Local currency deposit ratings of Ba3/NP; Foreign currency deposit ratings of B1/NP

• A standalone baseline credit assessment (BCA) of b1; and

• An adjusted BCA of b1

The ratings outlook is stable.

Moody's has also assigned a Counterparty Risk Assessment (CR Assessment) of Ba3(cr)/NP(cr) to the bank.

RATINGS RATIONALE

The Ba3 long-term ratings assigned to Eastern Bank incorporate its BCA of b1 and a one notch uplift to reflect Moody's assumption of moderate systemic support to the bank in case of stress. However, its foreign currency deposit rating remains positioned at B1 because Bangladesh’s foreign currency deposit ceiling is capped at that level

Eastern Bank is a corporate-focused bank, with around a 2%-3% share of total loans in the domestic market. Its key credit strengths comprise its profitability profile, strong balance sheet buffers and record of good asset quality. On the other hand, its liquidity profile is weak.

The bank's asset quality has been consistently better than its peers, as measured by gross non-performing loans (NPLs). However, as is the case with other banks in the system, Eastern Bank has seen a pickup in its NPL ratio since 2011.

Moody's notes that in the case of Eastern Bank, its rise in NPLs has consistently registered at lower levels than its peers. Importantly, asset quality is stabilizing, with a better performance during the nine months to 30 September 2015 when compared to the same period in 2014.

The bank's reported core Tier 1 ratio was at 10.2% at end-2014, and its loan loss coverage stood at 109% at 30 September 2015. The bank should be able to maintain its Tier 1 ratio at current levels, because it can support loan growth with retained earnings. However, management's aim of maintaining a high payout ratio could limit improvements to the Tier 1 ratio.

Eastern Bank's profitability metrics are healthy, its net interest margins (NIMs) are high on an absolute basis, but the persistently low inflation rates in Bangladesh (Ba3 stable) could lead to lower interest rates and downward margin pressure.

The bank's liquidity profile is weak. It has consistently demonstrated one of the highest loan-to-deposit ratios among its domestic peers, leading to the weakness in its liquidity profile.

Eastern Bank is primarily retail deposit funded, with around 65% of its deposits from its retail segment.

Moody's assumption of a moderate level of systemic support for Eastern Bank reflects the bank's modest 2%-3% share of system advances and deposits in a fragmented banking system, as well as the country's central bank's — Bangladesh Bank's — record of providing regulatory support to the banking system.

Moody's assessment of systemic support results in a one-notch uplift to Eastern Bank's ratings to Ba3, a result which is higher than the bank's BCA of b1.

COUNTERPARTY RISK ASSESSMENT

Eastern Bank's CR Assessment is positioned at Ba3(cr)/NP(cr). Such assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and relates to a bank's contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. Senior obligations represented by the CR Assessments will be more likely preserved to limit contagion, minimize losses and avoid disruption of critical functions.

What Could Change the Rating Up/Down

An improvement in the bank's asset quality — to levels better than Moody's expects — which in turn leads to higher profitability by way of lower credit costs, could provide upward pressure on the ratings.

The bank shows a significant borrower concentration. If some of the large accounts turn into NPLs, Eastern Bank's NPL ratios will deteriorate materially, thereby putting downward pressure on the ratings.

Moreover, a decline in its net interest margins to levels lower than Moody's expects will lead to a reduction in profitability and put downward pressure on the bank's ratings.

A summary of Eastern Bank's first-time ratings as assigned by Moody's is as follows:

- Ba3 local currency long-term deposit ratings; outlook stable, B1 foreign currency long-term deposit ratings; outlook stable

- Ba3 local currency and foreign currency long-term issuer ratings; outlook stable

- b1 BCA and b1 adjusted BCA

- Ba3(cr)/NP(cr) long-term and short term counterparty risk assessments

- NP local currency and foreign currency short-term deposit ratings

- NP local currency and foreign currency short-term issuer ratings

The principal methodology used in these was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Dhaka, Eastern Bank Limited's consolidated assets totaled BDT173 billion (approximately $2.2 billion) at 31 December 2014.

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 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 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 rating action, and whose ratings may change as a result of this 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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's assigns first-time Ba3 ratings to Eastern Bank
No Related Data.
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