International credit rating agency Fitch Ratings changed the Outlook on Bulgaria's First Investment Bank (FIBank) to Stable from Positive. The other ratings of the bank are affirmed at Long-term Issuer Default (IDR) 'BB-' (BB minus), Short-term IDR 'B', Individual 'D', Support '5' and Support Rating Floor 'No Floor'.

The Outlook change reflects Fitch's view of the currently more challenging operating environment for FIBank, which makes it less likely for its Long-term IDR to be upgraded in the short- to medium-term.

The general increase in funding costs, both internationally and domestically, coupled with expected modest lending growth for 2008, might result in margin pressure, weaker operating profits and, ultimately, lower internal capital generation.

FIBank's ratings reflect the bank's good franchise, improvements in business diversification, acceptable capitalization and risk management framework. However, FIBank's ratings still consider some borrower concentration, lower profitability than best-performing domestic peers' and a small capital base in absolute terms.

FIBank's net profit increased by almost 50% in the first quarter of 2008, although this strong performance might be difficult to maintain throughout the year. Net interest revenue, the largest contributor to operating revenues, was sound, and net interest margin stable over 2007, mainly supported by higher interest rates charged on loans while lending volumes were broadly stable compared to end-2007.

The bank's asset quality is still healthy, with non-performing loans (i.e. overdue by more than 90 days) forming less than 2% of total loans and a coverage ratio that comfortably exceeds 100%. Because of the expected lower asset growth, asset quality ratios might deteriorate.

Since early 2008 the bank has successfully managed to attract local currency customer deposits, thanks to competitive pricing. Funding from customers accounted for 66% of the bank's total funding at end-March 2008.

The remainder was primarily in the form of long-term funding from international markets. The bank also successfully repaid 200 mln euros of Eurobonds in the first quarter of 2008. Interbank funding remains marginal in FIBank's funding strategy.

FIBank's capitalization is at an acceptable level, according to Fitch Ratings. To support capitalization, the bank did not distribute any dividend for 2007. Founded in 1993, FIBank was the sixth-largest bank in Bulgaria by total assets at end-2007. The bank occupied 7% and 8% of the market in terms of assets and deposits, respectively, as at the end of March 2008. The ultimate control of the bank lies with its two founding shareholders, who have significant interests in the tourism and real estate sectors. FIBank is listed on the Bulgarian Stock Exchange. It recently set up a subsidiary bank in Albania.