"Fitch Ratings downgraded BAI from B to B- following a similar rating action on Angola on 6 March 2020," reads a note issued this Thursday by the financial ratings agency, which further sinks BAI's rating into non-investment recommendation territory, or 'junk' as it is commonly called.
"Our assessment is that Angola's ability to support BAI has declined, particularly in terms of foreign currency, as shown by the rating B- awarded to the sovereign issuer," the rating explains, adding that Fitch's view "is that in the event of a stress scenario the government may give priority to debt payment or other policy objectives, and not give priority to supporting the bank".
Thus, Fitch states that "it is no longer certain that extraordinary support from the Government will be given to BAI or the banking sector in general in case of need", but points out: "Even so, we believe that the authorities are available to provide support, in case of need, to the banks and BAI in particular, given their high systemic importance (the market share is 20 per cent of total assets) and the large proportion of foreign currency deposits from the public sector and the oil-related segment".
The government's financial flexibility has recently been reduced following a sharp depreciation of the kwanza against the US dollar, which raised public debt to over 100 per cent of GDP at the end of 2019, from 81 per cent a year earlier, and the cost of servicing the debt is high, accounting for around 37 per cent of the government's external revenues, according to Fitch Ratings.
The ability to maintain foreign reserves at US$17 billion (15.13 billion euros at the current exchange rate) registered at the end of 2019 "seems increasingly difficult, given the drop in oil prices and the approaching debt maturities this year," conclude the analysts.
