By John Lee.
Fitch Ratings has revised the outlook for the Trade Bank of Iraq (TBI) from "Stable" to "Negative".
In a statement, it says that TBI's Issuer Default Rating (IDR)s are driven by the bank's Viability Rating (VR) and underpinned by potential sovereign support.
"The revision of the Outlook to Negative from Stable follows a similar action on the sovereign rating (see "Fitch Revises Outlook on Iraq to Negative; Affirms at 'B-'" on www.fitchratings.com).
"This reflects the impact of the decline in oil prices on Iraq's fiscal and external finances, near-term uncertainty concerning the sovereign's financing plan and limitations on policymakers' ability to respond to the fiscal crisis. Iraq's budget revenue sensitivity to oil price and volume is significant, given dependence on oil that accounts for 85%-90% of fiscal revenue.
"We forecast that the budget deficit will widen to 19% of GDP in 2020 and government debt/GDP to an average of 80% in 2020-2021, versus 47% in 2019.
"TBI's VR of 'b-' is constrained by the operating environment in Iraq, which is volatile and challenging, and where TBI generates 70% of its business volume (on- and off-balance sheet exposure).
"Therefore, the operating environment and broader country risks influence TBI's standalone risk profile. As a result, we see downside risks to the stability of TBI's business model, the ability of the bank to execute its strategy, as well as earnings, capitalisation and funding and liquidity relative to when we last reviewed TBI's ratings."