Moody’s Downgrades ICICI UK’s Long Term Debt
Moody’s, the global rating agency, last week downgraded ICICI Bank UK, the British subsidiary of ICICI Bank. The ratings agency downgraded supported long term bank deposits, senior unsecured debt and also revised the ratings for subordinated and junior subordinated debt issued by the bank.
Moody’s did however reaffirm the financial strength rating of the bank and its prime short term ratings and said that the outlook on all the lenders ratings remain stable. Three weeks ago, after significant selling pressure started to weigh down ICICI Bank share price, and investors were rattled by what the lender claims were malicious rumours started by unsavory short sellers, both ratings agencies Moody’s and S&P issued statements which said that the banks overseas operations had no significant subprime exposure.
“ICICI Bank’s UK subsidiary has no high-risk, subprime securities and enjoys robust asset quality and liquidity,” Moody’s said, whilst rival S&P’s statement pointed out “credit fundamentals of ICICI Bank continue to remain sound despite the reports on its exposure to Lehman Brothers or the Bakerie group.”
Moody’s downgrade of ICICI Bank’s UK subsidiaries long term debt and deposits reflects the change in Moody’s underlying baseline credit assessment of the parent. ICICI Banks currently has the highest rating assigned to an Indian bank.
Moody’s said that the financial strength “D” rating took into account volatility in earnings which may result from the ban’s large securities holdings. This combined with mark-to-market write downs on the banks investment book and write offs in its trading book may depress profitability and impact available- for-sale reserves negatively.
Moody’s did offer a caveat however and said “In this respect, we, however, note that the bank’s investment policy has been rather conservative and that the mark-to-market impact is a function of market volatility rather than structured or high-risk, subprime-related securities.”
Moody’s also said it was encouraged by the level of support the parent bank demonstrated towards its UK subsidiary which is the Indian banking majors largest. ICICI Bank injected $ 100 million of tier 1 equity capital into the subsidiary mitigating any potential losses and maintaining the subsidiaries current capitalisation level.
The ratings downgrades largely reflect ICICI Bank UK’s high integration and dependence on the group, evidenced by the recent capital injections, as well as its strategic importance to the parent.
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