OREANDA-NEWS. Fitch Ratings has affirmed Banco Angolano de Investimentos SA's (BAI) Long-term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. BAI's Viability Rating (VR) has also been affirmed at 'b'. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
BAI's IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect a limited probability of support from the Angolan authorities (BB-/Negative), if required. Fitch believes that propensity to support the bank is high, given BAI's systemic importance, with a market leading share of deposits, but the ability to support is constrained by the sovereign rating, the Outlook on which was revised to Negative from Stable on 27 March 2015 (see "Fitch Revises Angola's Outlook to Negative; Affirms at 'BB-'").

We also believe the probability that the authorities would provide support is heightened by the relatively small size of the banking system in Angola, the funding structure of BAI, which mostly comprises local currency deposits and the very recent track record of support from the authorities, who re-capitalised the failed bank Banco Espirito Santo Angola (BESA), via the state-owned oil company Sonangol, also a shareholder in BAI.

RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND SENIOR DEBT
BAI's Long-term IDR, SR and SRF are sensitive to a change in Fitch's view of the willingness or ability of the Angolan authorities to provide support for BAI. The Outlook on BAI's IDR is Stable, while the Outlook on the sovereign rating is Negative, indicating that a downgrade of the Angolan sovereign rating by one notch may not necessarily lead to a downgrade of BAI's Long-term IDR.

KEY RATING DRIVERS - VR
BAI's VR reflects the evolving operating environment in Angola, where the financial markets and regulatory framework are in a development phase. BESA, a major bank in the sector failed in 2H14, but we believe contagion risk to BAI is limited. The VR is also driven by risks to asset quality from the bank's high concentrations by single obligor and to riskier sectors, such as real estate and construction and oil, where asset quality may deteriorate as a result of lower oil prices.

The VR also considers the bank's well-entrenched franchise and high proportion of cash and government securities, although markets for Angolan securities are not deep. In addition, the bank's deposit base is concentrated and volatile, particularly in foreign currency, exposing BAI's funding base to event risk. We consider capital ratios as no more than adequate given the inherent risks in the operating environment.

RATING SENSITIVITIES - VR
The bank's VR is sensitive to developments in its operating environment. The Angolan economy is highly reliant on oil export revenues. Lower oil prices are likely to have a debilitating effect on asset quality either directly or indirectly, via a depreciating Angolan kwanza. In addition, the VR is sensitive to event risk given concentrations on both sides of the balance sheet. While we believe the authorities would be supportive of the bank, BAI is sensitive to a liquidity shock, given deposit concentrations, should it not be able to access central bank liquidity for any reason.

The rating actions are as follows:

Long-term IDR affirmed at 'B+'; Outlook Stable
Short-term IDR affirmed at 'B'
Support Rating affirmed at '4'
Support Rating Floor affirmed at 'B+'
Viability Rating affirmed at 'b'