Moody's places BoQ on review

Moody's placed BoQ on review for a potential downgrade of its single-A credit rating after the bank announced a profit slide. The review follows BoQ's report of higher impairment charges and will focus on the bank's asset outlook and whether impairment expenses will fall next year.

BoQ's annual profit fell 13% to $158 million. The bank said the decline followed a near-doubling of impairment charges largely tied to its exposure to the regional commercial property sector.

Moody's said the review will concentrate on BoQ's asset outlook and the likelihood of a reduction in impairment expenses next year — essentially assessing whether asset quality and future loan-loss charges improve.

Acting CEO Ram Kangatharan expressed confidence that BoQ could retain its rating during the three-month review, saying the bank expects to demonstrate continued improvement in recent trends in asset quality.

BoQ said much of the increase in lending losses related to flood and weather events of a one-off nature. The bank also noted its leasing portfolio has stabilised.

Moody's A2 rating on BoQ is two notches higher than the bank's BBB+ ratings from other agencies, including Standard & Poor's.

Marina Ip, an assistant vice‑president at Moody's, said BoQ's asset quality continued to deteriorate at the end of 2010‑11, though at a slower pace. She noted increased delinquency rates in both the housing and commercial loan books, with housing delinquency running higher than the system average.

Investors should monitor updates on BoQ's impairment charges, asset‑quality trends and any reporting that shows whether impairment expenses are likely to fall next year. The three‑month Moody's review will centre on those factors and could determine whether the bank's single‑A rating is maintained or downgraded.