Capital Intelligence has assigned initial ratings for Slovakia's Priemyselna banka (PRB) in Košice of BB long term and A-3 short term, the Cyprus-based bank ratings agency said on January 26. A stable outlook is appended to the ratings, it said in a news release.
Capital Intelligence said the bank has spent three years building up its loan-loss reserves, which now cover 80% of non performing loans. Unprovided non performing loans represented a significantly smaller portion of free capital for 1997 as compared to the previous year.
In addition, the agency said positive factors were the bank's clear marketing strategy and the 20% of its capital held by the European Bank for Reconstruction and Development (EBRD).
The bank's net profit fell by 34.5% in 1997 due to a continued but slower rise in operating expenses and a 5.5% reduction in gross income. The latter, in turn, was due to an increase in the level of interest rates, which especially impacted PRB negatively because of its relatively high dependence on the expensive interbank market, Capital Intelligence said.
The agency expressed some concern over a reduction in the loan-loss provisions made in 1997, notwithstanding the bank's already high non-performing loans coverage. PRB's return on equity has been consistently low relative to its peers, largely because of PRB's historically good capitalisation levels and high provisioning. Nevertheless, in 1997, return to equity fell to 7.4% and the return on average assets figure to 0.72%.
Capital Intelligence described the bank's liquidity situation as "mixed," with notation made of high liquid asset ratios, and called its bank capital adequacy "fair." PRB's historically high risk asset ratio has been steadily falling. Nevetheless the 9.7% level at year-end 1997, which reflected the EBRD capital injection, was adequate.
A further increase in capital will be required over the medium term, but the bank has no definite plans in this respect, Capital Intelligence said.