Fitch Ratings has affirmed
Fitch has withdrawn IBP's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor', as these are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on
Key Rating Drivers
IBP's ratings are underpinned by the bank's diversified revenue streams, healthy leverage ratio, and a strong liquidity position. This is counterbalanced by its exposure to higher-risk sectors and asset classes, which weighs on our assessment of its risk profile and asset quality.
IBP's business profile is supported by revenue diversification, as it generates significant income from capital-light activities (almost half of revenue in 1H22), and its well-established franchise in wealth management and advisory. At the same time, the bank's strategic focus on more volatile segments, such as commercial real estate and structured corporate-asset financing, weighs on our assessment, as does the bank's moderate, albeit reducing, exposure to illiquid equity investments.
Operating profit/risk-weighted assets (RWAs) improved significantly to above pre-pandemic levels at 1.5% in 1H22 (0.7% in FY21 (ending
Asset quality metrics have improved with IBP's stage 3/gross loans ratio falling to 2.0% at
Reserve coverage of problem loans has declined, but is broadly in line with peers, with expected credit losses (ECLs) equal to 1.0% of gross loans at end-1H22 (end-FY21: 1.3%), given improved IFRS 9 ECL model forecast since the outbreak of the pandemic and also a reduction in legacy problem loans.
Capitalisation has been resilient since the onset of the pandemic, with IBP's end-1H22 common equity Tier (CET1) ratio of 11.7% moderately above management's minimum target of above 10.0%. IBP's RWAs are calculated using the standardised approach, resulting in a high risk-weight density of 65% (RWAs/total assets). The
IBP's minimum requirements for own funds and eligible liabilities (MREL) has been set at a level equal to its capital requirements excluding buffers, given its modified insolvency status. As a result, no additional capital requirements are expected due to MREL.
IBP's lending activities are largely funded through customer deposits. Deposit stability is supported by a large share of customer deposits being covered by the
The bank's 'F2' Short-Term IDR is the lower of two possible options mapping to a Long-Term IDR of 'BBB+', in line with our assessment of the bank's funding and liquidity score at 'a-'.
IBP is a wholly-owned subsidiary of
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IBP's ratings could be downgraded in case of an unexpected severe setback to the economies it does business in resulting in pressure on IBP's financial metrics. A downgrade may result if the four-year average Stage 3 loan ratio is expected to increase towards 6% without a clear path to reduction, if IBP's CET1 ratio looks set to fall below the bank's target of 10% without a clear path for a swift return above this level, or if there is prolonged earnings weakness with operating profitability falling below 1% of RWAs.
IBP's ratings are also sensitive to reputational risks coming from the
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upside to IBP's ratings are currently limited. Over the medium term, an upgrade would require evidence of robustness in IPB's business profile throughout economic cycles, which should translate into sustainably stronger risk-adjusted profitability and a record of strong asset quality performance.
IBP's Long-Term IDR is equalised with the VR because the bank's buffer of qualifying junior debt (QJD) is not large enough to warrant a one-notch uplift of the Long-Term IDR. The Long-Term IDR could be notched above the VR if we expect the QJD buffer to increase and remain sustainably over 10% of RWAs or in the event of a change in resolution legislation, such that the bank has a regulatory incentive to increase QJD to protect third-party senior obligations from default in case of failure.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
We have assigned a GSR of 'ns' in light of the bank's low systemic importance as well as legislation in place that is likely to require senior creditors to participate in losses for resolving IBP.
Senior unsecured debt issued by IBP is rated in line with its IDR as we consider there to be average recovery prospects at IBP in the event of default.
Subordinated debt (Tier 2) issued by IBP is notched down twice from its VR for loss severity, reflecting below-average recoveries.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IBP's senior debt rating is primarily sensitive to changes in the IDR and would be downgraded if the IDR was downgraded.
IBP's subordinated debt rating is primarily sensitive to changes in the VR, or to a change in Fitch's assessment of non-performance or loss severity in default.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IBP's senior debt rating would be upgraded if the IDR was upgraded.
IBP's subordinated debt would be upgraded if the VR was upgraded.
Fitch does not expect changes to IBP's GSR given the low systemic importance of the bank and legislation that is likely to require senior creditors to participate in losses in the event of a resolution of IBP.
VR ADJUSTMENTS
The Operating Environment score has been assigned in line with the implied score. Sovereign Rating was identified as a relevant negative factor in the assessment.
The Business Profile score has been assigned in line with the implied score.
The Asset Quality score has been assigned in line with the implied score.
The Earnings & Profitability score has been assigned in line with the implied score.
The Capitalisation & Leverage score has been assigned below the implied score due to the following adjustment reason(s): Risk Profile and Business Model (negative).
The Funding & Liquidity score has been assigned in line with the implied score.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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