Latest news with #ViabilityRatings
Times of Oman
21-05-2025
- Business
- Times of Oman
Indian Banks are better prepared now to handle financial stress now: Fitch Ratings
New Delhi: Indian banks have shown a marked improvement in their risk profile and asset quality, according to a recent report by Fitch Ratings. The global rating agency noted that this progress has led to upgrades in the Viability Ratings (VRs) of several large Indian banks. Fitch said the recent VR upgrades reflect stronger underwriting standards, better loan diversification, improved asset quality, and stronger buffers to absorb losses. The upgrades signal that Indian banks are better prepared to handle financial stress than in the past. It said, "The recent upgrades of Indian banks, Viability Ratings (VRs) reflect improved risk profile and asset quality". In March 2025, Fitch upgraded the VRs of Punjab National Bank, Union Bank of India, and Bank of India. All three banks are rated at BBB-/Stable for Issuer Default Rating (IDR) and bb- for Viability Rating. In April 2025, Bank of Maharashtra and ICICI Bank Limited also saw their VRs upgraded. Bank of Maharashtra holds a BBB-/Stable IDR and a bb- VR, while ICICI Bank stands out with a BB+/Stable IDR and a bb+ VR--the highest among the nine large Indian banks rated by Fitch. Despite these improvements, the report expects the Issuer Default Ratings of these banks to remain unchanged. This is because these ratings are largely based on the expectation that the Indian government (rated BBB-/Stable) will provide extraordinary support if needed. Therefore, the improvement in banks' internal strength does not directly affect the IDRs. The report also pointed out that some banks, like Bank of Baroda and Canara Bank, continue to face constraints on their VRs due to high growth appetite and risks related to newly issued loans. However, if these banks can sustain their recent financial improvements, Fitch may consider upgrading their VRs as well. After the recent upgrades, all nine large Indian banks rated by Fitch now fall within the 'bb' category in terms of Viability Ratings. This indicated a moderate level of financial strength, with ICICI Bank leading the pack due to its better performance, lower risk appetite, and more stable track record.
Biz Bahrain
18-03-2025
- Business
- Biz Bahrain
Draft AAOIFI Standard 62 has not affected Islamic banks, but uncertainties persist
The draft AAOIFI Sharia Standard 62 has had no impact on Islamic banks' ratings so far, but there remains a lack of clarity around the standard's final scope and implementation, Fitch Ratings says. The standard has not reduced Islamic banks' ability to issue, invest in and arrange sukuk, but these remain risks to watch. Many Islamic banks are active sukuk issuers. If the adoption of Standard No. 62 disrupted sukuk issuance, it may affect some Islamic banks' overall funding and liquidity profiles, although most Fitch-rated Islamic banks have sound funding and liquidity profiles and are predominantly deposit funded. It could also raise Islamic banks' cost of funding. Demand, including from international investors, could be affected if it made sukuk less comparable to conventional bonds. Depending on the final adoption, certain scenarios could emerge which could lead to actions on Islamic banks' Viability Ratings (VRs) to reflect the combined impact of changes to individual metrics. These could be negative, neutral or positive. Standard No. 62 is part of AAOIFI's efforts to align sukuk market standards with sharia principles. As Fitch has previously noted, any impact on how we analyse and rate issuers' creditworthiness and sukuk itself will depend on the exact requirements and stipulations of the final standard, which jurisdictions and entities adopt it, and how they implement it in the sukuk documentation. Moreover, we would not expect adoption to have an immediate impact on existing bank sukuk ratings as material changes to the documentation would require sukuk holder approval. Most Fitch-rated sukuk currently have asset-based structures in which most underlying assets, including Islamic banks' ijara financing books, remain on the obligors' balance sheet. If the standard encourages a move towards asset-backed sukuk, the derecognition of assets could reduce the balance-sheet size and associated debts for the issuing Islamic bank. This deleveraging could affect balance-sheet liquidity, profitability and regulatory capital ratios among other factors, with potential implications for our evaluation of their VRs. However, this remains highly uncertain. A key consideration would be whether our analysis needs to focus more on the assets backing the sukuk structure rather than the creditworthiness of the issuers, whose balance sheets would reflect the transfer of asset ownership and the associated risks. The lack of established securitisation markets in most major Islamic finance jurisdictions could also create legal and operational uncertainty. It is yet to be seen if regulators will allow Islamic banks to legally transfer assets from their balance sheet to a special-purpose vehicle. Transferring assets from their balance sheets could be attractive to Islamic banks, depending on the circumstances. The final standard is expected to be issued in 2025, but the timeline remains unclear. We expect that most standard-adopting regulators are likely to be pragmatic to limit the potential impacts on financial stability and debt capital market access and development. AAOIFI and the regulators are likely to give stakeholders at least a few years for implementing the standard. We currently rate bank sukuk issuances under both Fitch's Bank Rating Criteria and Sukuk Rating Criteria. A move towards asset-backed sukuk could render such instruments unratable under the Sukuk Rating Criteria. They could then require evaluation by other analytical groups based on separate criteria. A move towards quasi-equity structures where the repayment of the face value is subject to market risk could also render the sukuk unratable. Differences in adoption across markets could reduce sukuk activity, potentially impacting Islamic banks' profitability and/or liquidity to some extent. The overall impact on each banking system would need to be assessed individually.
