On 26 July 2012, Moody's Investors Service downgraded the ratings of Nova KBM from Ba2/Non-Prime/E+ to B3/Non-Prime/E. The outlook is negative.
Moody’s says that the downgrade reflects the deterioration of the Bank’s standalone financial fundamentals, including rapid problem loan formation and the erosion of its risk-absorption capacity, as well as the rating agency’s views of the willingness of the government to provide support, balanced against a recognition of the fiscal challenges of supporting multiple banks and the government’s preference to find private sources for recapitalisation.
Overall, the downgrade reflects the significantly increased pressure on the Bank’s capital adequacy, which is driven by on-going and severe asset-quality deterioration. The capital position of Nova KBM deteriorated in the first half of 2012. Although the Bank announced its intention to address this deterioration by disposal of non-core assets, Moody’s considers that replenishing capital via asset sales remains challenging in the current market. Moody’s believes that the Bank will need to deleverage further to alleviate solvency pressures, which may impair the Bank’s franchise value.
