Мoody's Investors Service said on Tuesday it has assigned first time B1 long-term local and foreign currency deposit ratings to Bulgaria's First Investment Bank (Fibank), аccording to their website. 

"The deposit ratings reflect the bank's b2 standalone Baseline Credit Assessment (BCA) and one notch of uplift reflecting Moody's expectation of a Moderate likelihood of support from the government of Bulgaria (Baa2, stable) in case of need," the rating agency said in a statement.

The outlook on the long-term deposit ratings is stable.

The moderate support assumption reflects Fibank's systemic significance as the third largest bank in Bulgaria.

FiBank has strong income generation as indicated by its 3.6% ratio of pre-provision income to risk weighted assets as of December 2016 and 0.8% return on assets. Income streams are relatively diversified and Moody's expects the bank's efficiency to remain broadly in line with peers. The rating agency also expects the bank's credit costs to stabilise at around 1.5%.

The rating agency expects FiBank to maintain its deposit-based funding structure and sizeable liquidity buffers. FiBank is funded by, predominantly retail, deposits as indicated by its ratio of average due to customers' to average funding which was 96% as of December 2016. The bank's ratio of liquid assets to tangible banking assets was a sizeable 28% as of December 2016.

Moody's expects that the bank's asset quality will improve gradually driven by write offs and the improving operating environment which supports the bank's restructuring efforts. Nevertheless, FiBank has a high level of problem loans, with the ratio of NPE's to gross loans at 24.4% as of December 2016 and the ratio of 90 days or more past due loans at 17.5%. The bank also has a large portfolio of foreclosed properties accounting for around 12% of total assets which exposes it to the risk of facing a loss when it sells this real estate. 

In Moody's view, despite significant improvement with the additional independent director elected on its board in 2015 and the strengthening of the risk, audit and compliance functions, FiBank's corporate governance practices are in some areas still evolving and weaker than global best practice. Given the long-standing relationship of the majority of the independent board directors with the bank, the rating agency believes that the supervisory board's decisions may continue to be influenced by the interests of the bank's two major shareholders with 42.5% stake each. Additionally, in Moody's opinion, the concentration of ownership of the bank in the hands of two individuals gives rise to some key-man risk issues.

FiBank operates in Bulgaria, which is an EU-member country. As such, under the EU Bank Resolution and Recovery Directive it is subject to an Operation Resolution Regime, similar to other EU countries. As a result, and in accordance with Moody's Banks' methodology, the rating agency has applied its advanced LGF analysis, to assess the risks faced by the different debt and deposit classes across the liability structure should the bank enter resolution.

The rating agency's analysis assumes residual tangible common equity of 3% and losses post-failure of 8% of tangible banking assets, 10% junior deposits and a 25% run-off in "junior" wholesale deposits, and a 5% run-off in preferred deposits. These are in line with Moody's standard assumptions.

The rating agency takes into consideration full 'depositor preference', whereby junior deposits are preferred over senior debt creditors, in accordance with a law decree introducing full depositor preference in Bulgaria that became enforceable in August 2015.

The stable outlook assigned to FiBank's deposit ratings reflects Moody's expectation that despite improvement in asset quality, the bank's solvency over the next 12 to 18 months will continue to be threatened by its large stock of non-performing assets on its balance sheet limiting upside pressure. 

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