Moody’s raises Bulgaria’s First Investment Bank outlook to positive

Moody’s Investors Service has changed to ‘positive’ from ‘stable’ the outlook on the D bank financial strength rating (BFSR) of First Investment Bank (FIB) of Bulgaria.

The change in rating outlook reflects the strengthening of FIB’s standing within the D BFSR range as a result of its growing market share and franchise, recent capital injection and expected reduction in funding costs. Results for the six months to June 2007, showed the bank’s net income growing by a strong 60% year-on-year, and by 34% (annualised) since YE2006 to BGN 19.2 mln (EUR 9.8 mln).

Subsequent to the abolition of the credit restrictions at the beginning of 2007, the bank shifted its business mix towards higher-yielding assets, thereby enhancing interest rate margins. Margins also benefited  from the shift in the composition of the bank’s liabilities. The May 2007 capital increase raised approximately BGN 107 mln of fresh equity, reducing FIB’s reliance on costly borrowings for its funding (borrowings funded 32.9% of the balance sheet at 1H2007 compared to 35.6% at YE2006).

At the same time, fresh equity enhanced capitalisation to more comfortable levels, with Tier 1 capital increasing to 10.3% as at end-June 2007 and total capital ratio standing at a comfortable 15.3%.

Meanwhile, having successfully built strong and sustainable market shares, FIB is currently the only locally owned bank of consequence competing on an equal basis against predominantly foreign-owned peers.

This said, upward ratings pressure is currently capped by still lower-than-peer margins and weaker operating efficiencies (both largely due to higher funding costs), as well as by lingering high borrower concentration, corporate governance-related factors, and by Bulgaria‘s still challenging operating environment. In addition, positive ratings pressure from FIB’s gains in franchise strengthening are countered by growing concerns over future credit quality in the country, given rapid credit portfolio expansion by Bulgarian banks (including that of FIB).

Successfully addressing the above-mentioned constraints, while at the same time maintaining financial performance improvements on the recently-exhibited trajectory, could lead to a BFSR upgrade for FIB over the next 18 months.

Headquartered in Sofia, Bulgaria, FIB had total assets of BGN 3.15 bln (EUR 1.61 bln) at year-end 2006.