Wednesday 14, February 2018 by Matthew AmlĂ´t

Moody's places the ratings of Banco Angolano de Investimentos SA's under review for downgrade

Moody's Investors Service has today placed under review for downgrade Banco Angolano de Investimentos, S.A.'s (BAI) ratings, including its B2 long-term local currency deposit rating, B3 long-term foreign currency deposit rating, b3 baseline credit assessment (BCA) and B2(cr) long-term Counterparty Risk (CR) Assessment.

The bank's short-term deposit ratings and CR Assessment were affirmed at Not-Prime and Not-Prime(cr), respectively. A list of affected ratings is provided at the end of this press release.

The rating actions follow the review for downgrade on Angola's B2 government bond ratings on 7 February 2018 and reflect (1) the risk of further weakening in the government's capacity to support the bank in case of need; and (2) the challenging operating conditions, which may also exert pressure on BAI's own credit profile.

The primary driver of today's rating action is the risk of a further weakening in the capacity of the Angolan government to support BAI in case of need, as reflected by the review for downgrade on Angola's B2 issuer rating. The review for downgrade on Angola's issuer rating was driven by a worse than expected deterioration of the government's balance sheet as a result of (1) the government's assumption of the national oil company's debt, (2) significant recognition of arrears (not yet fully audited) and (3) the sharp depreciation of the currency following the introduction of a more flexible exchange rate. BAI's local currency deposit rating currently incorporates one notch of government support uplift, which aligns it with the rating of Angola.

The other key driver of today's review for downgrade relates to the slow recovery of the Angolan economy and the potential for continued transmission of pressure onto borrowers and, ultimately, the banks themselves.

Muted economic activity has already negatively pressured the credit risk profiles of Angolan banks, which are faced with (1) pressure on their asset quality and profitability metrics stemming from their indirect exposures to the government, and from their significant exposures to foreign currency lending; and (2) the shortage of dollar liquidity, which raises the risk of banks failing to meet their foreign currency liabilities, specifically deposits.

During the review period, Moody's will assess: (1) the direction in which the macro environment and overall operating conditions for Angolan banks evolve; and (2) the extent to which pressure will be exerted on BAI's credit profile, including loan growth, asset quality, capital retention capacity, funding and liquidity. The review will include an analysis of the bank's relative rating positioning against its global peers.

There is limited upside pressure on the bank's rating given the current review for downgrade on both the sovereign and the bank.

Moody's would downgrade the ratings if the review concludes that (1) the ongoing challenges in BAI's domestic operating environment poses downside risks for the bank's solvency and/or liquidity beyond what is already assumed in the ratings and/or (2) the government's capacity to provide support has deteriorated.

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