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Banking and Insurance

Moody's reviews three bank ratings down to Caa1

The credit rating agency Moody's has downgraded the rating of the long-term deposits of Banco Angolano de Investimento (BAI), Banco de Fomento Angola (BFA) and Banco Económico (BE) from B3 to Caa1, with a stable outlook.

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"Moody's Investor Service has downgraded the long-term deposit ratings of three Angolan banks," says the financial rating agency in a note issued this Thursday, referring to BAI, BFA and BE, adding that "the outlook for the long-term deposits of these three banks it is stable ".

The North American ratings company also confirmed a degradation of the Base Credit Rating (ABC) and the adjusted ABC of BAI and BFA.

"These actions conclude the review for the degradation of the ratings on deposits in Angolan banks that started on April 2 and follow the degradation" of Angola's long-term sovereign debt rating, issued in local and foreign currency, which passed on Wednesday, also, from B3 to Caa1.

In early April, Moody's announced that it had put the ratings of BAI, BFA and BE in negative review, after doing the same for the Republic of Angola.

"Today's rating actions reflect Moody's expectations regarding the weakening of the individual credit profile at BAI and BFA during the coronavirus pandemic and low oil prices, as well as a weakened fiscal capacity of the Angolan Government to support the Banco Económico in case of need ", says the financial rating agency in the note disclosed.

In Moody's view, the shares reflect "the shocks resulting from the abrupt fall in the price of oil and the coronavirus pandemic and the depreciation of the currency contribute to a significant weakening of Angola's already weak public finances and fragile external position".

Due to the downturn in the economy's performance, the financial rating agency expects gross domestic product to contract by 3.3 percent in 2020, instead of an estimated 1.2 percent expansion before these "shocks".

On the other hand, Moody's points out that banks benefit due to the "low amount of loans" and for having "more resilient profitability that supports the decrease in absorption capacity".

Moody's adds that the stable outlook for these banks reflects the stable outlook for the sovereign rating.

In order to improve the rating of banks, Moody's considers that "any growing balance of bank ratings will be dependent on a higher sovereign rating".

Banknotes B3 and Caa1 both belong to a non-investment grade, whose downward scale ranges from Ba1 to C. Bonds classified as Caa (1, 2 or 3) are considered to be of poor quality and subject to a very high credit risk, as definition of the rating agency.

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