S&P warns IBA faces downgrade
Ratings agency Standard & Poor's has placed the credit ratings of International Bank of Asia (IBA) under review for possible downgrade after the bank posted a sharp drop in last year's earnings.
On Wednesday, IBA reported a 70.9 per cent decline in net profit to HK$23.83 million, due chiefly to an increase in provisions for non-performing loans made to mainland borrowers.
The result stunned the market, which was expecting a 63 per cent profit increase on the strength of lower provisioning charges.
S&P yesterday said it had placed IBA's BBB long-term and A-3 short-term, counter-party ratings, as well as its BBB rating on the bank's floating-rate certificate of deposit programme on credit watch 'with negative implications'.
'The credit watch action reflects ongoing concerns about IBA's exposure to borrowers from mainland China, given the financial difficulties that many of them are experiencing,' said S&P.
'Relative to many of its peers in Hong Kong, IBA has a higher level of direct and indirect exposure to such borrowers. In light of this, it is necessary to determine likely future provisioning and write-off levels for the bank.' S&P added, however, that these concerns were to a certain extent mitigated by IBA's 'ample liquidity and strong capital position'.
It expected to complete the review by the first week of May.
IBA spokesman Steven Thompson said the bank was confident the review would reaffirm its sound fundamentals and existing ratings.
'We have taken steps to put the issue of China loans behind us, reducing exposure by over US$160 million, or more than half of total PRC loans in the past 18 months,' he said.
In addition, the bank had accelerated its provisionings, he said, in order to present a clean slate in 2000 'so that we can concentrate on business expansion'.
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