Singapore, March 25, 2013 -- Moody's Investors Service has downgraded Syndicate Bank's
global local currency deposit rating to Baa3/P-3 from Baa2/P-2.
Moody's has also downgraded Syndicate Bank's senior unsecured
debt rating to Baa3, in line with the downgrade of the bank's
global local currency deposit rating.
In addition, Moody's has downgraded to (P)Baa3 from (P)Baa2
the foreign currency senior unsecured debt rating on Syndicate Bank's
medium term note program.
Moreover, Moody's has downgraded the bank's subordinate
debt to (P)Ba1 from (P)Baa3, and its junior subordinate debt to
(P)Ba2 from (P)Ba1.
The outlook on the ratings is stable.
Furthermore, Moody's has downgraded Syndicate Bank's
standalone bank financial strength rating (BFSR) to D from D+.
The BFSR of D maps to a baseline credit assessment (BCA) of ba2 on Moody's
long-term rating scale.
The rating outlook on the BFSR is negative.
At the same time, Moody's has affirmed Syndicate Bank's
foreign currency bank deposit ratings of Baa3/Prime-3, with
a stable outlook. The affirmation and outlook are in line with
the bank's global local currency deposit rating and outlook.
The foreign currency bank deposit ratings continue to benefit from two
notches of uplift from the bank's BCA of ba2, owing very high
likelihood of systemic support based on majority government ownership
and is reinforced by bank's policy role of providing banking services
to rural communities.
A list of all the ratings affected is provided at the end of this press
release.
RATINGS RATIONALE
The downgrade of Syndicate Bank's standalone ratings to D/ba2 reflects
its weak position when compared with its domestic and global peers,
particularly in relation to asset quality. Its restructured loans
portfolio totaled INR 92 billion at end-December 2012 versus INR
69 billion at end-March 2012. The bank also has a significant
exposure to large industries (27% of total loans at end-December
2012) including infrastructure, that are vulnerable to economic
downturns. Moreover, the bank's income concentration
represents a risk to its profitability.
Syndicate Bank's weak asset quality and lack of income diversity
is a situation which if prolonged, may pressure the bank's
ability to generate internal capital in order to meet required levels
of capital.
The bank's asset quality as measured by impaired loans (gross non-performing
loans plus restructured loans) as a percentage of total loans deteriorated
to 9.5% at end-December 2012, from 8.0%
at end March 2012.
Although a slight improvement was observed in the amount of gross NPLs
reported in the third quarter ended December 2012 compared to the previous
quarter (by a mere INR 0.19 billion, or US$4 million),
Moody's expects Syndicate Bank's asset quality to remain under
pressure in 2013, because although there are signs that the operating
environment is improving -- such as a stabilization of inflation
and interest rates -- Moody's does not expect the improvement
to have a significant positive effect on the ability of corporate borrowers
to repay their loans, as economic and borrowing conditions nevertheless
remain difficult in absolute terms.
In addition, the bank's earnings are largely driven by net
interest income, which contributed 83% of total revenues
at end-March 2012. In contrast, the net interest income
as a proportion of the total revenues for the Indian banks rated by Moody's
was an average of 72%. Moody's expects Syndicate Bank's
net interest income to continue accounting for a large proportion of its
total revenues for at least the next twelve months, because the
bank's business model and franchise are unlikely to change in that
time.
At end-March 2012, Syndicate Bank's pre-provision
profits and net income -- both as a percentage of average risk weighted
assets -- were at 3.77% and 1.48%;
levels which are average when compared with Indian banks rated by Moody's.
Syndicate Bank has not received equity injections from the Indian government
in the current fiscal year ending 31 March 2013, because of its
ability to generate internal capital and maintain Tier 1 capital over
8.5%, which is sufficient to meet the capital requirement
for loan growth.
However, the bank has a low ability to absorb possible losses,
given its provisioning coverage of 64% of gross non-performing
loans or 15% of impaired loans.
In general, Syndicate Bank -- like its domestic peers
-- has lower asset quality, profitability and capitalization
levels than compared with its regional peers.
The negative outlook on the standalone ratings reflects the pressure on
the bank from India's persistently difficult economic environment,
characterized by economic slowdown. This operating environment
puts the bank at risk of further deterioration in its asset quality.
The negative outlook also takes into account the bank's small capital
cushion compared with its similarly-rated domestic and regional
peers.
On the other hand, the stable outlook on the bank's deposit
and debt ratings reflects Moody's assumption of a high probability
of support for the bank from the Government of India in times of stress,
and the high likelihood that the bank's deposit and debt ratings
will remain at their current rating levels even if its standalone rating
is downgraded to ba3, given the government's majority ownership
of the bank.
The list of ratings assigned to Syndicate Bank is:
BFSR/BCA: D/ba2
Global local currency deposit rating: Baa3/P3
Foreign currency deposit rating: Baa3/P3
Foreign currency senior unsecured debt program: (P)Baa3
Foreign currency subordinated debt program: (P)Ba1
Foreign currency junior subordinated debt program: P(Ba2)
Syndicate Bank, London branch
Foreign currency senior unsecured debt: Baa3
Foreign currency senior unsecured debt program: (P)Baa3
Foreign currency subordinated debt program: (P)Ba1
Foreign currency junior subordinated debt program: (P)Ba2
All ratings carry a stable outlook except for the negative outlook on
the BFSR/BCA.
The principal methodology used in this rating was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
Syndicate Bank, headquartered in Bengaluru, had assets of
INR1.82 trillion as of 31 March 2012.
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.
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.
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
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
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: (65) 6398-8308
Moody's downgrades Syndicate Bank to Baa3/P-3
