Outlook negative on Vijaya Bank: Fitch

Fitch today revised the outlook on Vijaya Bank due to increase dependence on wholesale funds.

Global rating agency Fitch today revised the outlook on state-owned Vijaya Bank to negative from stable due to increase dependence on wholesale funds.

The negative outlook reflects the bank’s stressed funding profile at end-March 2011 due to its increased dependence on wholesale funds,particularly certificates of deposits (CD),Fitch said in a statement.

While the reliance reduced in 2009-10,it reversed in the following year with loan to customer deposits (excluding CD) of 89 per cent at end-March 2011,significantly higher than most government banks,it said.

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Rating outlook indicate the direction a rating is likely to move over a one-to-two-year period.

The rating agency noted that the resulting refinancing pressures can be mitigated to some extent by the bank’s status as a government bank,it said.

Nevertheless,high institutional funding could significantly impact its net interest margins (NIMs) in the present rising interest rate scenario,it said.

The outlook could be revised back to Stable if there is a sustainable improvement in the bank’s funding profile and profitability,and stabilisation in asset quality.

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The bank’s funding from bulk deposits remains high (around 44 per cent of total deposits 2010-11),and it has increased its share of short-term CD to play on the yield curve,thereby creating significant asset liability tenure gaps,it said.

This presents significant interest rate and refinancing risks,especially in light of high amount of CDs that are expected to be due for refinancing during the same time frame,it said.