Banks unaffected by Bermuda downgrade

Fitch Ratings issued statements on the Bank of NT Butterfield and Bermuda Commercial Bank this week.

It comes after the ratings agency downgraded Bermuda’s sovereign credit rating from A+ to AA- at the end of May. 

Fitch Ratings has affirmed BNTB long-term Issuer Default Rating (IDR) at ‘A-’ and Viability Rating (VR) at ‘bbb-’. The Rating Outlook is Negative. 

The Outlook reflects Fitch’s evolving views of sovereign support. 

Fitch said the resolution could extend beyond the normal 18 to 24-month window.

Fitch said Butterfield has a “strong market position, liquid balance sheet, and good capital levels, offset by modest earnings measures, significant product concentration in residential lending, geographic concentration in Bermuda and large exposures in its commercial loan portfolio.”

Fitch is concerned about the number of non-performing loans, which is higher than similarly rated peers and when compared to Fitch-rated US community banks.

Although BNTB continues to face asset quality pressures, specifically in its residential loan portfolio, Fitch expects net losses to remain manageable. Despite BNTB’s non-performing assets (NPA); inclusive of accruing troubled debt restructurings and foreclosed real estate) remaining high at 3.5 per cent as of Dec. 31, 2013, average net chargeoffs (NCOs) remain extremely low at 44 basis points (bps).

Fitch added that BNTB’s earnings improved with return on assets (ROA) and net interest margins (NIM) “reflecting a positive trend”. Most of the improvement was supported by increased net interest income due to investment revenue yields rising and a rise in fee revenues, while expenses have been relatively flat. 

Fitch said Butterfield’s Viability Rating (VR) “could see positive momentum should the company demonstrate sustainable core profitability improvement while materially reducing its non-performing loans”.

Butterfield’s rating outlook revision to negative “reflects Fitch’s evolving view of support from Bermuda. Fitch considers Bermuda to be a Path 2 country, defined as one in which there is a weakening of sovereign support of the banking sector”.

Fitch said: “BNTB’s preferred stock rating is highly sensitive to any changes in the ability of the Bermuda government to fulfill its obligation. A downgrade in the sovereign rating of Bermuda would trigger a commensurate downgrade of the preferred stock.”

BCB

Fitch Ratings has affirmed the Long- and Short-term Issuer Default Ratings (IDRs) of Bermuda Commercial Bank (BCB) at ‘BBB-/F3’. The Rating Outlook is Stable. 

Fitch said: “The affirmation of BCB’s IDRs and Stable Outlook reflects the company’s liquid balance sheet and its strong capital position. The company’s unusually strong liquidity profile and capital levels have a high influence on Fitch’s investment grade rating for BCB. 

“BCB operates with a very liquid balance sheet relative to its bank peers in Bermuda and the community bank peer group in the U.S. 

“With average cash on hand averaging 44 per cent of total assets over the last five years, Fitch views BCB’s balance sheet as sufficient to weather through a liquidity crisis, although such an event is considered unlikely.”