Fitch Ratings yesterday affirmed the ratings of Aspis Bank at long-term issuer default (IDR) BB+, short-term IDR B, individual C/D and support rating 5. At the same time, the agency has affirmed the bank’s support rating floor at «No Floor.» The outlook for the long-term IDR is «Stable.» Aspis’s IDRs and individual rating take into account its increasing capital base, comfortable capital ratios, stable retail funding sources and expertise in its niche mortgage market. However, they also reflect the bank’s below-par profitability, mediocre asset quality, risk concentration in its corporate loan book and competitive pressure on its core business. In 2006 and Q307, operating revenue remained broadly flat due to a thinner net interest margin canceling out strong loan growth and unchanged, albeit relatively high, fee income. Operating profitability improved marginally, owing to low and stable impairment charges and improvements in operating costs. However, it has an operating ROAE of 9.31 percent at end-Q307, which is still somewhat weaker than that of its larger peers, indicating Aspis’s lack of economies of scale. The bank’s net income in 9M07 was negatively affected by an additional tax charge relating to previous years, which resulted from a recent tax audit. Aspis is mainly exposed to credit risk in its strongly increasing loan book, amounting to -2.1 billion or 80.4 percent of assets at end-Q307. Risk is, however, mitigated by a high proportion of mortgage loans and sound risk management systems. Despite improvements, at end-H107, the bank’s impaired loan ratio was 5.8 percent (7.8 percent at end-2005), still undistinguished, and coverage was relatively low. Loan concentration is high, with five loans (and commitments) exceeding 10 percent of eligible capital at end-2006. Market risk is moderate and largely limited to modest structural balance sheet mismatches. Retail deposits are Aspis’s main source of funding, accounting for 81.4 percent of non-equity funding. Aspis’s funding profile benefits from a -250 million RMBS transaction and -100 million subordinated debt.