INSUBCONTINENT EXCLUSIVE:
New Delhi: Fitch Ratings Tuesday affirmed Punjab National Bank's (PNB) Issuer Default Rating and removed Viability Rating from 'Rating
Watch Negative', as it feels that the lender's non-performing loans have peaked and downside risk to profitability has eased.
"The removal
of the VR (Viability Rating) from 'Rating Watch Negative' is based on our view that further downside to the VR is less than we had
previously assessed, as we believe the non-performing loan (NPL) ratio has peaked," Fitch said.
"However, profitability remains under
pressure -- we believe the bank may report another loss in the financial year ending March 2019 -- but the downside risk beyond then has
eased," it added.
Core capitalisation also remains under pressure in light of the challenges of returning to profitability and delays in
executing some capital-raising initiatives, Fitch added.
The long-term IDR of PNB stands at 'BBB-' and its VR at 'b', Fitch said, while
removing it from Rating Watch Negative
The outlook on the IDR is Stable, Fitch said in a statement.
IDRs opine on an entity's relative vulnerability to default on financial
VRs represent the capacity of the bank to maintain ongoing operations and to avoid failure.
"The VR reflects PNB's weak intrinsic risk
profile, which is evident from its vulnerable core capitalisation and persistent earning pressure," it added.
The bank's gross NPL ratio
of 17.1 per cent and specific loan-loss allowance ratio of 52.9 per cent have seen a slight improvement since FY18, but remain weaker than
those of most comparable peers.
Fitch said it expects credit costs to remain elevated, with ageing provisions adding to the burden.
