Moodys Likely To Upgrade State Bank

Moody's Investors Service today placed the State Bank of India's (SBI) local currency deposit rating on review for possible upgrade. International credit rating agency has also put the deposit ratings of eight banks from five other countries under review following revision in Moody's rating methodology.

SBI's current local currency deposit ratings as assigned by the Moody's is "Ba1/not prime". As per the agency's rating definition, banks rated "Ba" for deposits offer questionable credit quality. Often the ability of these banks to meet deposit obligations punctually may be uncertain and therefore not well safeguarded in the future.

Regarding SBI, the rating agency has reasoned that no Indian government would allow SBI to default on its local currency obligations. Further, the government continues to provide support for its ailing financial institutions, although this has not always been in a timely manner. The review of SBI's local currency deposit rating will focus on this issue of timeliness and the likely mechanism of support.

 

The possible upgrade in deposit ratings of nine banks from the six emerging market nations - India, Korea, Malaysia, the Philippines, Poland, and Uruguay - is to reflect the change in rating methodology by Moody's with regard to banks' credit quality in relation to that of the ceiling ratings of their home country.

Deposit ratings of four banks from Korea are being reviewed by Moody's for a possible upgrade while only one bank each from five other emerging countries feature in the review.

Moody's said that in assigning foreign currency bank ratings in the past, a common practice was to rate the strongest banks at the ceiling and to notch downward the lesser entities.

However, a recent study conducted by Moody's of all such ratings globally has shown that this "ordinal scale" approach has in several cases resulted in lower ratings for some banks than they would have received, had the ceiling been higher.

Hence, the nine banks now under review may be eligible for ratings at or near their home country deposit and debt ceilings. Moody's said that some of these banks have very low financial strength ratings but all have low risk of local currency default, either because they are solvent or too important to be allowed to default, or both.

This new methodology is detailed in a Moody's special comment to be released this week -- "Emerging market bank ratings in local and foreign currency: Implications of country risk and institutional support."