Bad loans to hit bank profits: Moody's

Credit rating agency Moody’s Investors Service On Thursday said the profitability of Indian banks could be affected due to rising delinquency levels.In addition, Moody’s Asian Banking Outlook 2009 said that public sector banks might need fresh capital due to their low levels of Tier-I capital and their inability to reduce government holding below 51 per cent.
The good news, however, is that the government has promised assistance to these banks and the private sector players have adequate capital, since they raised money earlier.Such a development (assistance to government banks) would not only raise the banks’ Tier-I and tangible equity ratios and support future loan expansion, it would also enhance their loss absorption capacity. Under the current difficult market conditions, we consider a bank’s equity buffer as an important rating driver, as strongly capitalised banks can sustain possible loan losses stemming from an adverse credit cycle,” the report said. The report said banks faced higher levels of non-performing assets as flow of credit to the real economy had decreased, resulting in higher capital cost for companies. In addition, credit cycle has turned and corporate earnings have weakened, which would put a strain the asset quality.
In January, the agency had credit outlook for Indian banks from stable to negative on account of the economic slowdown and the prospects of weaker asset quality. It, however, pointed out that Indian banks had remained largely unaffected by the global financial crisis.
It said that ratings could improve once the implementation of technological improvements by public sector banks yielded results, there was a significant improvement in structural profitability through cost rationalisation and containment of non-performing loans and earnings quality improved on account of further development of fee-based income streams.
However, ratings could be adversely affected on account of significant asset quality deterioration and weakening of provisioning levels. In addition, declining Tier-I capital ratio, with limited prospects of being replenished, and additional pressure on the market position of public sector banks could make rating fall, the report said.
Apart from India, Moody’s outlined a negative forecast for southeast and south Asian banks due to the impact of the global and domestic slowdown in the region’s economies.
“The widespread presence of negative industry outlooks across the banking systems covered by Moody’s in the region reflects our basically cautious stance over the next 12 months,” it said.
Also, the mildly positive macro-economic indicators and signs of stock market recovery have only recently emerged and do raise doubts over the certainty of a swift recovery, the report said.


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Prospect Capital Announces First Closing on Expanded $250 Million Revolving Credit Facility

The new Facility, for which lenders have closed on $175 million to date, includes an accordion feature which allows the Facility to accept up to an aggregate total of $250 million of commitments, a "hard cap" Prospect expects to reach with additional lenders. The revolving period of the Facility extends through June 2010, with an additional one year amortization period after the completion of the revolving period. The maturity date of the Facility is June 2020. Pricing for the Facility is one-month Libor plus 4%, subject to a minimum Libor floor of 2%. The Facility has an investment grade Moody's rating of A2.
"With $75 million of net participations available before we hit our 'hard cap,' we are hopeful that we can include each of the additional banks now moving through their committees to close, even if we cannot assure every bank the amount of participation it might desire in this investment grade facility," said John Barry, Chairman and Chief Executive Officer of Prospect.
ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com) is a closed-end investment company that lends to and invests in private and microcap public businesses. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.
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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, whose safe harbor for forward-looking statements does not apply to business development companies. Any such statements, other than statements of historical fact, are highly likely to be affected by other unknowable future events and conditions, including elements of the future that are or are not under our control, and that we may or may not have considered; accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results are highly likely to vary materially from these estimates and projections of the future. Such statements speak only as of the time when made, and we undertake no obligation to update any such statement now or in the future.

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