S&P Global Ratings today lowered ICICI Bank's standalone credit profile to 'bbb-' from 'bbb' saying the private bank's asset quality will remain under pressure over the next one year.
It also affirmed 'BBB-' long-term and 'A-3' short-term foreign currency issuer credit ratings to the bank, with stable outlook. Issue ratings on the bank's outstanding senior unsecured notes and Basel II compliant tier 2 hybrid notes was also affirmed.
"We have lowered ICICI Bank's stand-alone credit profile (SACP) to 'bbb-' from 'bbb'. This reflects our view that the bank's asset quality will remain under pressure over the next 12 months. We have therefore revised our assessment of ICICI Bank's risk position to moderate from adequate," the rating agency said in a statement.
According to S&P website, BBB rating exhibits "adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation."
'A-3' rating too means the same.
"We affirmed the ratings because we expect ICICI Bank to maintain its strong business position supported by its good business diversity, and its satisfactory capitalisation and funding, despite weakening asset quality," said S&P Global Ratings credit analyst Amit Pandey.
S&P said it expects ICICI Bank's credit costs to remain high because of continued pressure on asset quality, given the tough operating conditions for capital intensive corporate sectors in India.
"About 53 per cent of the bank's loans on a stand-alone basis are to the corporate and small and midsize enterprise segments. The rising stress in these exposures has led to an increase in the bank's consolidated gross nonperforming loan (NPL) ratio to 5.7 per cent as of June 30, 2016, from 3.8 per cent as of March 31, 2015," S&P said.
ICICI Bank's exposure to power, metal/mining, and rig companies is likely to continue to contribute to further slippages, S&P said.
These sectors have come under stress in the current business cycle.
The bank's net standard restructured loans of Rs 7200 crore may also contribute to the rise in NPLs.
"We expect ICICI Bank's earnings to remain well above the industry average despite the elevated credit costs," said Pandey. "This is because of the bank's competitive net interest margins, sizable fee income, and low cost-to-income ratio."
S&P said ICICI Bank's core earnings are likely to average around 1.2 per cent of adjusted assets as compared with the industry average of 0.4 per cent.
