Fitch removes PNB from rating watch negative; lender's NPA ratio peaks

Lender's profitability remains under pressure, says ratings agency

Global ratings agency Fitch has removed Punjab National Bank (PNB) from rating watch negative as further downside risk to the viability rating was less than what the agency had assessed earlier. 

The non-performing loan (NPL) ratio of Delhi-based public sector lender PNB has peaked. Its gross NPL ratio of 17.1 per cent and specific loan-loss allowance ratio of 52.9 per cent have seen a slight improvement since FY18. But these remain weaker than those of most comparable peers. 

However, profitability remains under pressure. PNB may report another loss in the financial year ending March 2019 (FY19). But, the downside risk beyond then has eased, the ratings agency said in a statement. 

It affirmed the long-term issuer default rating (IDR) at 'BBB-' and its viability rating (VR) at 'b', while removing it from rating watch negative.  

The outlook on the IDR is stable. The stable outlook on the IDR reflects the outlook on the sovereign's rating (BBB-/Stable).

The core capitalisation also remains under pressure in light of the challenges of returning to profitability and delays in executing some capital raising initiatives. 

The ratings agency said it assumes the state's high propensity to provide extraordinary support to PNB. This support is not expected to diminish in the near-term.

Both recoveries and operating income improved in H1'FY19 and the momentum is likely to stay positive in the near-term. Nonetheless, credit costs were high at 5.4 per cent of loans, well exceeding the bank's pre-provisions profits, it added.