Fitch Affirms Bank Of Butterfield’s Ratings
Fitch Ratings has affirmed Bank of N.T. Butterfield & Son Limited’s [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.
“As mentioned in the RAC dated June 09, 2014, Fitch envisions the resolution of the Rating Outlook could extend beyond the typical 18- to 24-month outlook horizon given the evolving nature of sovereign support dynamics, particularly in the Bermuda jurisdiction,” the ratings agency said.
“The affirmations of BNTB’s IDR, Support Rating [SR] and Support Floor Rating [SRF] reflect its systemic importance to the local economy, as well as demonstrated support from the Bermudian government in the past, namely the 2009 guarantee on the principal and interest payments of BNTB’s preferred stock. The preferred stock rating would be unaffected by any changes to BNTB’s SR or SRF as it is based off of sovereign support.
“The Negative Outlook 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.
“The Bermuda Monetary Authority’s [BMA] proposal regarding a statutory framework for a special resolution regime for banks licensed in Bermuda embeds many of the provisions of the UK Banking Act 2009, according to the BMA.
“It proposes to provide the authorities with the necessary stabilization powers to transfer part or all of a failing bank’s business to a private sector purchaser, assume control of part or all of a failing bank’s business through a bridge bank, and acquire temporary public ownership of a bank where required. The proposed framework suggests a weakening of support for the financial sector over time, in Fitch’s view.
“Fitch’s affirmation of BNTB’s VRs incorporates the view that the tangible common equity position measured by the TCE/TA ratio would remain above 5%. Further, Fitch believes the company will continue to build its capital position getting back to its normalized ranges by 2016. Should these factors change, ratings could be pressured.
“Additionally, a downgrade of the VR could occur in the event of significant deterioration of financial performance, a rise in NCOs due to asset quality pressures, and an increase to the risk level of the balance sheet mix.
“BNTB’s VR could see positive momentum should the company’s demonstrate sustainable core profitability improvement while materially reducing its non-performing loans. Although capital measures are high and will come down, Fitch would expect BNTB to continue to operate with above average capital position.”
