A LEADING international credit agency has warned Bank of Queensland that its rating will be cut unless it can rein in its bad debt problem.
Fitch Ratings has also warned BoQ that its concentration in Queensland is a major concern as the state's economy outside of the mining sector struggles, reports The Australian Financial Review.
In a new report on Monday, Fitch affirmed BoQ's BBB+ credit rating with a "stable" outlook. But it warned the rating would be downgraded if bad debts were not brought under control.
"BoQ's ratings could be downgraded if asset quality continues to deteriorate sharply and erodes its solid capitalisation," Fitch said in the report.
"Its asset quality and profitability are also more susceptible to deterioration than peers due to its larger exposure to Queensland, whose economy, excluding mining, continues to perform weakly."
BoQ slumped to a $17.1 million loss in the 2012 financial year as a result of a sharp increase in bad debts, which soared amid plummeting property prices and weak economic conditions in Queensland.
The result marked the first loss by an Australian bank in more than two decades and forced BoQ to raise $450 million from investors in a bid to bolster its balance sheet.
Fitch noted that BoQ had improved its capitalisation and said it had "solid liquidity". But it warned the bank would remain under pressure amid stiff competition from rival banks.
"A low credit growth environment, combined with fierce competition for deposits and loans, is likely to place pressure on BoQ's revenue generation," Fitch said.
In a separate report on Monday Fitch warned bad debts across Australia's banking sector would rise modestly in 2013 as the high Australian dollar and weak consumer confidence took a toll on businesses.
Fitch said demand for loans would remain subdued over the next year but added that the profitability of the banks would remain "robust".
