Fitch Ratings has revised National Development Bank PLC's (NDB) Outlook to ‘Negative from Stable’.
Its National Long-Term rating has been affirmed at 'AA(lka)'. Fitch has also affirmed NDB's subordinated debentures at 'AA-(lka)', the agency said in a statement. “The Outlook revision reflects NDB's increased risk profile in terms of its decreasing capitalisation alongside aggressive loan expansion and potential pressure on its asset quality and profitability through portfolio seasoning and higher credit costs,” it said.
Thus, Fitch said, a sustained deterioration of NDB's profile in terms of these credit metrics could result in a rating downgrade, while its ability to stem such deterioration could revise the Outlook back to Stable. Notwithstanding the deterioration, the ratings continue to reflect NDB's strong credit metrics in terms of its capitalisation, asset quality, and profitability. NDB's strong loan expansion of 41.8% in 2011 (28.8% in 2010) led to a decline in its equity/assets to 12.7% from 14.7%. Fitch expects lending momentum to remain high alongside its expanding operations, as part of the repositioning of the bank to target the mass market.
NDB's gross non-performing loan (NPL) ratio remained among the lowest in the sector at 1.3% during the first quarter of 2012. However, Fitch believes that the bank's high loan growth and the shift in its loan book composition towards mid-sized corporates and SMEs among others could test its credit risk management.