Fitch cuts Punjab National Bank viability

Fitch Ratings said it downgraded Punjab National Bank’s (BBB-/stable) viability rating to b from bb- and kept it on rating watch negative.

At the same time, the agency affirmed the bank’s long-term issuer default rating at BBB- and support rating floor and support rating at BBB- and 2, respectively.

The outlook is stable.

The issuer default rating is at the bank’s support rating floor of BBB- and reflects the bank’s view of the state's high propensity to provide extraordinary support to the bank.

Fitch said the two-notch downgrade to the viability rating is a reflection of the significant deterioration in Punjab National Bank’s standalone credit profile, mainly due to a drop in its core capital ratio that was bigger than Fitch's expectation.

The deterioration in its core capitalization was caused by a sharp increase in its non-performing loans (NPLs), including the $2.2 billion in fraudulent transactions reported in February 2018, and the related increase in credit costs, which resulted in large losses in the financial year ended March 2018 (FY18), the agency explained.

The decline also highlights management's weaker execution and previous underwriting and oversight gaps, which the bank has already started taking steps to address.

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