Fitch Ratings has revised Malta-based Fimbank's (FIM) outlook to Negative from Stable and affirmed its Long-term Issuer Default (IDR) at 'BB', Short-term IDR at 'B', Viability Rating at 'bb' and Support Rating '5'. The Support Rating Floor is affirmed at 'No Floor'.

Fitch said the revision of the outlook to Negative reflects its concerns over the bank's weakening capital ratios in the past two years following business expansion.

"Fitch considers that FIM needs to continue operating with higher capital ratios in view of the bank's exposure to credit risk, high concentration levels by obligor and operational risk inherent in its activities. FIM's ratings continue to reflect its controlled asset quality, resilient profitability and balanced funding structure."

The agency added that FIM's appetite for credit risk is material but the bank has shown it is capable of adequately managing it to date.

"FIM is significantly exposed to emerging markets through its lending, forfaiting and off balance sheet exposure. However, the short-term nature of trade-finance transactions mitigates to some extent country risk. Asset quality remained adequate in 2011 with impaired loans stable at around 2% on total loans to customers and banks, despite increased risk at the bank's factoring subsidiary in Dubai."

Fitch added that reserve coverage of impaired loans remained sound, albeit slightly decreasing. Operating profitability improved in 2011, as shown by its H111 operating ROAE of 7.3%, sustained by the positive momentum of the forfaiting market where assets were traded at higher spreads and lower loan impairment charges which together compensated for somewhat higher costs.