Tier 1 capital ratio, funding & liquidity positions raise concerns
SINGAPORE: Moody’s Investors Service has on Thursday (November 5, 2019) downgraded Yes Bank long-term foreign currency issuer rating to B2 from Ba3.
Moody’s has also downgraded the bank’s long-term foreign and local currency bank deposit ratings to B2 from Ba3, foreign currency senior unsecured MTN program rating to (P)B2 from (P)Ba3, and Baseline Credit Assessment (BCA) and Adjusted BCA to b3 from b1. The outlook on the bank’s ratings, where applicable, is negative. Today’s rating actions conclude Moody’s review for downgrade initiated on November 6, 2019.
Ratings Rationale
The downgrade of Yes Bank’s deposit and senior unsecured program ratings to B2 from Ba3 and (P)B2 from (P)Ba3 takes into account Moody’s expectation that the bank’s pool of potential stressed assets and low loss absorbing buffers against those assets – will add pressure to its funding and liquidity, creating additional risks to its standalone credit profile or BCA.
Moody’s expects Yes Bank’s common equity tier 1 (CET1) ratio of 8.7 per cent at the end of September 2019 to come under significant pressure, unless the bank can raise new capital in the next few quarters.
Moody’s notes that Yes Bank has received offers from a number of financial investors to invest up to $2 billion through new equity capital into the bank. Nevertheless, Moody’s notes that there are significant execution risks around the timing, price and regulatory approvals required.
The rating actions reflect Moody’s view that Yes Bank’s funding and liquidity compares weakly to other rated private sector peers in India, and could come under pressure, if the bank cannot strengthen its solvency in the next few quarters.
Yes Bank’s ratings also take into account Moody’s expectation of a moderate level of support from the Government of India (Baa2 negative) in times of need, which results in a one-notch uplift to the bank’s ratings from its BCA.
Moody’s expects that the Indian authorities will strive to maintain systemic stability and help prevent any weakness in the bank’s standalone credit profile from significantly affecting depositors and creditors. The support assumption also takes into account the bank’s modest, but increased franchise and relative importance to India’s banking system.
Moody’s maintains a negative adjustment for corporate behaviour in Yes Bank’s BCA, which results in a one notch negative adjustment to the bank’s BCA when compared to its financial profile. The corporate behaviour adjustment reflects the RBI’s identification of several lapses and regulatory breaches in various areas of the bank’s functioning in fiscal 2018.
