Fitch Ratings has assigned IMB Ltd a long-term issuer default rating of 'BBB+' with a 'Stable' outlook - ranking the Illawarra-based mutual bank at the lower end of investment grade. The ratings agency said this action reflected its view that "the bank is likely to continue its solid performance over the next two years. … IMB's underwriting and risk controls have improved, driven in part by greater regulatory focus.""This is reflected in [IMB's] consistently strong asset quality ratios, which remain strong relative to domestic and international peers. The bank's small franchise, stable earnings and adequate capitalisation were also factored into its ratings," according to Fitch's analysts."IMB has a stronger presence around the Illawarra region, but its franchise in the national context remains small, and the bank has limited pricing power in its key market, residential mortgages. "The bank operates a simple business model and has a traditional product offering, which reduces complexity and risk within the organisation."Fitch said it expects to see an increase in IMB's earnings and profitability in the current financial year (ie, to June 2018) following one-off impacts from an acquisition in FY17. Over the longer term, Fitch believes IMB's efficiency should moderately improve as a result of its investment in digital banking and cost management.IMB's funding and liquidity is "… about 90 per cent [sourced] from customer deposits, most of which are stable retail deposits. The bank also utilises some wholesale funding, but this is mainly as a diversification tool. "IMB's liquidity position is robust [although] a weakening of IMB's company profile or financial profile as a result of increased competition in the digital space and from non-bank lenders may place pressure on IMB's ratings," was Fitch's overall assessment.