Corporation Bank's bonds lose AAA status

Corporation Bank's bonds have lost AAA status on continuous weakening of the financial risk profile of the public sector lender. Rating agency CRISIL has downgraded the rating on the bank's Tier-I perpetual bonds and upper Tier-II bonds to AA+ with negative outlook from AAA with stable outlook.

The action follows a weakening financial profile reflected in a steady decline in capitalisation and a modest resource profile, the agency said. But the agency reaffirmed FAAA/Stable rating for Corporation Bank's fixed-deposit programme.

The earnings profile has weakened significantly over two years. The bank's return on assets (RoA) ratio declined to 0.36 per cent (on an annualised basis) in the first nine months of 2013-14. Its RoA was 0.80 per cent in 2012-13, 0.98 per cent in 2011-12 and 1.11 per cent in 2010-11.

A sharp decline in net interest margins and high provisioning costs led to low profitability in 2013-14. The net interest margin (NIM; on a yearly average) was 1.9 per cent in the nine months of 2013-14. NIMs were 1.9 per cent in 2012-13 against an average of 2.6 per cent for public sector banks.

Its NIMs remain one of the lowest in the sector.

Corporation Bank's asset quality is better than most public sector banks'. Gross non-performing assets rose to 3.1 per cent as on December 31, 2013, from 1.7 per cent as on March 31, 2013.

While gross NPAs may increase in the near term because of the continuing macroeconomic challenges, the asset quality is expected to remain better than most public sector banks', CRISIL said.