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.
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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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Brazil Defaults Hit 8-Year High Despite Improved Credit

BRASILIA (Dow Jones)--In a sign of increased stress in Brazil's economy because of a global recession, the country's loan default rate reached an eight-year high in May despite a continued ongoing decline in average lending rates.
Brazil's central bank reported the overall average default rates, which take into account loans 90 days past due, rose to 5.5% in May from 5.2% in April. The May default rate was the highest since September 2000.
The bank said the default rate for individual borrowers reached an all-time record during the month, rising to 8.6% from 8.2%. The rate for businesses rose to 3.2% from 2.9%.
Speaking following the release of the figures, a central bank official said the recent surge of loan defaults was a result of a disappearance of financing options in the wake of a global credit crisis that took hold in the fourth quarter of 2008.
"With an abrupt drop in financing, companies and households saw difficulty in rolling over their debt," said central bank economics department coordinator Altamir Lopes. "With the restoration of credit lines, the expectation is that loan defaults will decline."
The increase in defaults came even as the country continued to report progress in the reduction of average credit rates.
The central bank reported average interest rates fell in May to 37.9% from 38.6% in response to easing local monetary policy. The monetary authority said the average bank credit rate for businesses fell to 28.5% annually in May from 28.8% the previous month, while the rate for individuals fell to 47.3% from 48.8% in April.
The overall decrease in interest rates came as the Brazilian central bank continued to cut the country's reference Selic interest rate amid concerns over a sluggish economy.
Since January, the bank has cut the country's reference Selic interest rate 4.5 percentage points to 9.25% annually.
According to recent central bank market surveys, the Selic rate is expected to decline by another half percentage point before the end of the year.
Brazil's overall credit volume continued a long-running rise during the month.
According to central bank data, total available credit in Brazil, including government-directed and non-directed credit, rose 0.8% to 1.26 trillion Brazilian reals ($641 billion) in May, or the equivalent of 43.0% of gross domestic product. Compared to May 2008, total credit supply in Brazil has expanded 20.5%.
The central bank reported non-government-directed lending volume rose 1.7% in May to BRL673.2 from BRL672.0 billion. The May result represented the fourth consecutive month of increasing credit volume in Brazil.
Lending to individual borrowers rose during the month to BRL289.9 billion from BRL285.7 billion in April, while lending to businesses fell to BRL383.2 billion from BRL386.3 billion.
The central bank's Lopes said that despite a temporary reduction in the availability of local credit lines prompted by adverse global economic conditions, credit would nonetheless expand significantly this year.
"Expectations have improved, because we are seeing a faster-than-expected recovery of the credit market," he said.
Lopes said total credit would likely increase by 15% in 2009, reaching 45% of GDP by the end of the year.

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