Fitch: Bank of Baroda Dubai exposure no affect on ratings
Fitch Ratings has today said that Bank of Baroda's (BOB) ratings will not be affected by its exposure to Dubai World, a company wholly-owned by the Government of Dubai, which is restructuring its debt obligations.
BOB has reported USD200m exposure (approximately INR9.3bn; 0.6% of BOB's gross loans at end-September 2009) to Dubai World, the largest reported by an Indian bank. Fitch is awaiting further details on whether the amount is part of the USD26bn debt restructured by Dubai World and its subsidiaries. BOB has reported nil exposure to Nakheel World and Limitless World, subsidiaries of Dubai World which are part of the proposed restructuring.
BOB has informed Fitch that Dubai World has, so far, paid all its interest due. The first principal repayment of the exposure is due in 2011; if the exposure were to be restructured, BOB's restructured loans could increase significantly. These restructured loans are classified as 'standard' under Indian regulation if the corporate, for example Dubai World, continues to be viable. At end-September 2009 restructured loans outstanding comprised 3.2% of BOB's total loans (systemic average: 4.3%).
While regulatory norms require Indian banks to provide only the amount of interest and principal sacrificed on a restructured loan, accelerated provisions are required if a loan is classified as non-performing. Fitch notes that BOB's specific plus 'floating' (voluntary loan loss provisions over and above specific loan loss reserves) loan loss coverage ratio (79.2% of gross NPLs at end-September 2009) remained better than the sector average and is above the new minimum coverage ratio.
UAE accounts for almost a third of BOB's international loans (26% of total loans), and BOB has some exposure to other real estate developers in the UAE. Nevertheless, Fitch notes that currently it appears that any downside to these exposures can be well absorbed by the bank's pre-provision operating profits without impacting its capital. The actual impact would only be clear in the coming weeks, and Fitch notes this is not expected to impair BOB's credit profile.
BOB's ratings reflect its well-established franchise in India, diversity of its operations and improved financials. Its ratings are as follows:
- Long-term foreign currency Issuer Default Rating (IDR): 'BBB-'/Stable Outlook;
- Short-term foreign currency IDR: 'F3';
- Individual rating: 'C/D';
- Support rating: '2';
- Support rating floor: 'BBB-';
- National Long-term rating: 'AAA(ind)'/Stable Outlook;
- National Short-term rating: 'F1+(ind)';
- INR35bn subordinated debt programme: 'AAA(ind)'; and
- USD300m unsecured subordinated Upper Tier 2 notes: 'BB'
Baroda (New Zealand) Limited (BOB NZ):
- Long-term foreign currency IDR: 'BBB-'/Stable Outlook.
BOB NZ is BOB's wholly-owned subsidiary.
BOB is the fourth-largest bank in India, by total assets, with a large pan-India branch network of 3,029 branches. The Government of India owns a 53.8% stake. The bank's international operations - it has a presence in 25 countries through 76 offices - contribute 23.1% to total profits.
