GCR has reaffirmed Fina Bank Limited’s national scale KShs currency long term credit rating at BBB (triple B) and its short term credit rating at A3 (single A three). The accorded ratings reflect the group’s established domestic and regional franchise value, as well as an improved capital position. These are, however, partly offset by the variability of earnings across operating jurisdictions, a weak risk management structure and questions around the group’s ability to compete with the aggressive competition from larger players in its target segments. The market as a whole is also vulnerable to further shocks – mainly: (i) public and/or political unrest, (ii) weather changes’ impact on food security and (iii) setbacks in the global recovery.
Although posting a slight improvement during the current year, the underlying quality of the bank’s credit portfolio remained somewhat problematic – with impairments as a percentage of the gross book more than double that of the market and its peers. It is also noted that the reduction in bad debts on book was not due to improved collections, but rather a continued portfolio clean up – write-offs (pre-recoveries) was up 15x to KShs298m for the year. Against expectations, however, net provisions held increased by only 8.6%, thus accounting for a marginally lower 6% of loans – with the coverage ratio/provision requirement driven down by the heavy credit given to collateral (despite the limited enforceability).
Despite lower loan activity and the weightiness of monetary policy on earnings, traditional banking activities remained profitable – with net interest exceeding budget and margins bouncing back to above pre-crisis averages. Also contributing to the group’s performance was a blanket re-pricing of facilities, as well as the group’s foray into low-cash intensive guarantee facilities, mostly backing trade contracts. Currency and bond trading activities also had some upside, with the group capitalising on the excess market volatility. The first quarter results reflects a deepening of the challenges faced during the past year – with interest income down and bad debt charges up. That said, the balancing effect of strong trading income, as well as cost containment, saw pre-tax profits close 6% up on the set budget.
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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