GCR has affirmed Fina Bank Limited’s national scale, long-term credit rating at BBB(KE) (triple B) and its short-term credit rating at A3(KE) (single A three). The accorded ratings reflect the group’s established domestic and regional franchise value, as well as an improved performance overall. This though, is partly offset by the variability of earnings across operating jurisdictions and questions around the group’s ability to compete with larger institutions.
The higher level of retained earnings saw the group widen the buffer between its operational and statutory ceilings – hence, not only did the group improve on its capacity to grant loans, it also improved on its comparative risk coverage ratios. Nevertheless, although asset coverage is considered adequate, liability cover is run fairly close to the regional bank average (a fact that should be monitored to prevent sudden draw risks). Despite the pressure of a general market downturn, the group showed a noticeable improvement in the performance of the credits on book – though, the impairment ratio still tracks above the market average and that of the group’s direct competitors. It should also be pointed out that a fair amount of restructuring occurred towards the end of the year – that being a combined public private initiative to prevent en mass defaults; whether or not the group was involved and/or affected must still be confirmed – though extended terms and write-offs seem likely.
In terms of profitability, the group reported an improved performance over both budget and in absolute growth terms (comparative view) – though, this was due to cost containment rather than a rolling escalation in blended earnings. Overall, efficiency and profitability showed an improvement. Notwithstanding the above, the following developments could see a negative rating action being considered: a change in underwriting criteria – the risk exists that the company might chase growth at the expense of conservative risk management/client selection. The repercussions of such a response could be costly; and/or, a further deterioration in economic conditions – with growth prospects cut yet again, the local economy is bracing for a tough year. Personal income and job security could come under pressure, with the impact on loan repayment capacity unclear at this time. Given the above, a positive rating action is unlikely at this time.
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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