Monday 06, November 2017 by Matthew Amlôt

Moody's downgrades Banco Angolano de Investimentos to B2 stable

Moody's Investors Service has today downgraded Banco Angolano de Investimentos, S.A.'s (BAI) global long-term local currency deposit ratings to B2 from B1, global long-term foreign currency deposit ratings to B3 from B2 and long-term Counterparty Risk Assessment (CR Assessment) to B2(cr) from B1(cr). The rating outlook on the long-term deposit ratings has changed to stable from negative.

The rating action is principally driven by Moody's downgrade of Angola's government bond ratings to B2 stable from B1 negative on 20 October 2017, and reflects the rating agency's view that the government's weakened creditworthiness also translates to a reduced capacity to provide support for Angolan banks -- including BAI -- in times of stress.

Moody's has also affirmed BAI's b3 baseline credit assessment (BCA), as the rating agency expects BAI's standalone credit profile to remain resilient, at the current rating level, despite challenging operating conditions, given the bank's adequate capital and liquidity buffers.

The primary driver for affirming BAI's b3 BCA is Moody's expectation of resilience in the bank's standalone credit profile despite the challenging operating environment. As of year-end 2016, the bank maintained robust tangible common equity and net income to tangible assets ratios of 13.6 per cent and 3.6 per cent, respectively, while maintaining a stable, deposit-based funding structure. Moody's expects that any potential deterioration in BAI's asset quality and liquidity position to be manageable and within the tolerance levels assumed in the bank's standalone rating, given the bank's capital and liquidity buffers.

Although Moody's view on the willingness of the Angolan government to provide support for BAI has not changed given the bank's systemic importance -- holding approximately 16 per cent market share in terms of deposits -- the rating agency considers that the government has a weakened financial capacity to provide such support, as implied by the downgrade of the sovereign issuer rating to B2 stable, from B1 negative, and the lowering of the rating ceilings for Angolan issuers.

The bank's long-term foreign currency deposit rating has been downgraded to B3 from B2, and is positioned at Angola's lowered B3 country ceiling (previously B2) for foreign currency deposits, which captures foreign currency transfer and convertibility risks. BAI's long-term foreign currency deposit rating no longer incorporates any notches of uplift on account of government support, down from one notch previously. BAI's B2 long-term local currency deposit ratings now incorporate one notch of rating uplift, down from two notches previously, given the lower sovereign issuer rating of B2.

In view of the strong linkages between the bank's creditworthiness and that of the sovereign, an upgrade of Angola's sovereign rating would put upward pressure on the bank's deposit ratings. A demonstrated ability to contain non-performing loans while maintaining good core profitability, capital and liquidty would put upward pressure on BAI's BCA.

The ratings could be downgraded in the event of a further downgrade of the sovereign itself and/or if we assess that the government's willingness to provide support in the future will decline below our current assumptions. The ratings could also be downgraded if we anticipate that the challenging macro environment poses downside risks for asset quality, capital and/or liquidty beyond what is already assumed in the ratings.