Moody's cuts ICICI Bank UK's long-term debt, deposit ratings

[rahul_parab2006]

LONDON: Global rating agency Moody's has said the long-term debt and bank deposit ratings for ICICI Bank UK, the British subsidiary of top Indian private sector lender, have been revised to a notch lower to bring it in line with the baseline credit assessment of the parent company.


While affirming the bank financial strength rating (BFSR) and a stable outlook on all ratings, Moody's said in its rating action note that the long-term bank deposit and senior unsecured debt ratings for ICICI Bank UK are being changed from Baa1 to Baa2, which is similar to the Indian parent's senior debt rating.

Moody's said that the current BFSR incorporates "a certain degree of volatility in earnings, which could potentially arise from the bank's large securities holdings".

The agency noted, however, it "takes comfort from the fact that the parent bank, as demonstrated earlier this year, has been proactive in supporting its largest overseas subsidiary by injecting an addition 100 million dollars of tier-i equity to mitigate potential losses and maintain ICICI Bank UK's current capitalisation level".

Moody's further said that it believes "the parent also has additional flexibility for future injections if needed. In this respect, the bank has set a target to maintain a capital ratio above the FSA requirement, which we consider a key rating driver for the BFSR."

When contacted, officials at the Indian parent entity said the bank was pleased that the global agency has re-affirmed the overall BFSR for the UK subsidiary with a stable outlook on all ratings, which re-affirms the belief about robust long-term fundamentals about the bank.

The UK arm currently has a capital adequacy ratio of 18.4 per cent, much higher than the British regulatory requirement of 14 per cent, the officials added.

The agency said the bank's 80-million dollar exposure to Lehman Brothers Holdings with likely write-down implications, partly provided in September quarter results, combined with additional mark-to-market write-downs and write-offs could
depress profitability in this fiscal year and impact negatively the available-for-sale reserves.

"In this respect, we, however, note that the bank's investment policy has been rather conservation and that the mark-to-market impact is a function of market volatility rather than structured or high-risk sub-prime related securities," Moody's said.

It further noted that the downgrade of ICICI Bank UK's long-term debt and deposit ratings is because of change in the parent bank's baseline credit assessment (BCA).

In a separate note on Monday, Moody's has revised down ICICI Bank's BCA from Baa1 to Baa2, which is highest for any Indian bank and had reaffirmed all its existing ratings with a stable outlook.

Moody's has also revised down the subordinated debt rating for the UK entity to Baa3 from Baa2 and the junior subordinated debt rating to Ba2 from Ba1.

Based in London, ICICI Bank UK had total assets of 8.8 billion dollars in the year ended March 2008 and is the Indian banking group's largest business outside the country.

On its note for the parent bank, Moody's said on Monday "ICICI Bank's BCA should be aligned to the same level as rated peers, takes into account the challenges faced by it in maintaining its strong earnings profile, good asset quality as well as its capacity to refinance its foreign currency funding needs in the currently difficult global markets."

The bank officials have said that the change in BCA is mainly because of the overall macroeconomic scenario currently prevailing in the country.