Nepal Investment Bank Limited get top issuer and subordinate debenture rating from ICRA Nepal indicating low credit risk

ICRA Nepal has placed the ratings assigned to Nepal Investment Bank Limited (NIBL) under watch with negative implications. These ratings include the issuer rating of [ICRANP-IR] A+ and the rating for subordinated debentures at [ICRANP] LA+, worth NPR 2750 Million. The rated entity carries low credit risk.

The ratings for NIBL have been kept under watch with negative implications, given the recent spike in non-performing loans (NPLs) and delinquencies, beyond the levels expected by ICRA Nepal. With two large slippages, the NPLs increased sharply to 3.04% as of mid-April 2019 from 1.26% as of mid-October 2018 (when last rated). Additionally, the 0+ days delinquencies increased to ~18% as of mid-April 2019 from ~14% when last rated, hence increasing the asset quality concerns. In ICRA Nepal’s assessment, the bank’s financial profile could witness some stress over the near term, given the low provision cover for recent large slippages (~38% for these two NPLs of NPR 2,389 million). NIBL’s capitalization also remained moderate at 11.97% as of mid-April 2019. However, the recently issued debentures (NPR 2,000 million), along with internal accruals, are expected to absorb the expected stress in capitalization over the near term. ICRA Nepal would be closely monitoring the developments in this regard and any further deterioration in the key indicators may exert pressure on the ratings assigned.

However, the ratings factor in NIBL’s strong market positioning, considering it is one of the largest private sector commercial banks with a share of ~5.3% in industry credit and deposits. The bank’s established track record (operating since 1986) and its moderate credit growth in recent periods also support the rating. NIBL’s diversified network along with its experienced management team are expected to provide it with adequate growth opportunities going forward. The ratings also take into consideration the gradual improvement in the bank’s net interest margins (NIMs). This, along with the healthy fee-based income and relatively low operating costs, led to an adequate earnings profile among peers. The ratings remain supported by the presence of institutional promoters, mainly Rastriya Beema Company Limited, a state-owned insurance company, which has a stake of ~12% along with representation on the bank’s board.

Nonetheless, the ratings remain constrained by the spike in the bank’s NPLs and delinquencies in recent periods. Given the sharp increase in interest rates in the last two years, the asset quality is expected to remain under stress over the medium term. However, consolidation and the moderate growth plans of the management could help lower the delinquency level. ICRA Nepal also notes the high customer concentration risks (~33% of credit and ~30% of deposits among the top 20 customer groups as of mid-April 2019). The ratings are also constrained by NIBL’s deposits profile, which is relatively modest among the top-tier banks of Nepal, leading to a slightly higher cost of funds. The ratings also factor in the probable systemic risks emanating from the mismatch in credit and deposit growth in the industry over the last few years. The bank’s ability to improve the mix/cost of deposits, reduce the concentration risks and improve the asset quality indicators would remain a key rating driver.

Source: ICRA Ratings Nepal