Johannesburg, 23 Nov 2015 – Global Credit Ratings has today assigned national scale ratings to Bank Windhoek Holdings Limited of AA(NA) and A1+(NA) in the long term and short term respectively; with the outlook accorded as Stable. Global Credit Ratings has also affirmed the national scale ratings assigned to Bank Windhoek Limited of AA(NA) and A1+(NA) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the long term South African national scale (Rand) issuer rating of A(ZA) assigned to Bank Windhoek Limited; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Bank Windhoek Holdings Limited (“BWH” and/or “the group”) and Bank Windhoek Limited (“BW”) based on the following key criteria:
The accorded ratings reflect BWH’s strong market position in the Namibian banking industry and significant presence in the insurance and asset management markets, stable capitalisation and earnings generation, enhanced risk management framework, and conservative risk appetite.
The group’s dominant operating subsidiary, BW, is the second largest commercial bank in Namibia with a market share of c.29.4% in terms of banking industry assets at FYE15. BW contributed 98.1% (FYE14: 97.9%) of the group’s consolidated assets at FYE15 and 88.9% (FYE14: 88.4%) of pre-tax profits. Other non-banking subsidiaries (offering insurance brokerage, property development, asset management and unit trust management products and services) contributed the balance. As such, the group’s ratings largely replicate the banking subsidiary’s ratings.
The ratings also reflect the high probability of support from the Namibian authorities, if required, given that BW is the largest locally owned bank in Namibia. More importantly, BW’s size and market presence (with a deposit share of c.28.5% at 30 June 2015) poses significant systemic risk should the institution fail.
BWH’s capitalisation is adequate on a consolidated basis as measured by the Bank of Namibia’s capital adequacy requirements (in line with Basel II) for banking groups. The group reported a total risk weighted capital adequacy ratio of 15.8% (FYE14: 15.8%) and Tier I risk based capital ratio of 13.7% (FYE14: 13.5%) at FYE15, which were well above the regulatory minima of 10% and 7% respectively, providing a sufficient buffer to absorb credit losses.
Although remaining sound, asset quality metrics came under pressure during F15, largely reflecting the downgrade of a few corporate exposures. The bulk of the group’s non-performing loans (“NPLs”) related to a single exposure equating to 40% of NPLs. NPLs grew by 87.2% to NAD261m in F15 (F14: 8.6% decrease). Consequently, the gross NPL ratio rose to 1.1% at FYE15 from 0.7% at FYE14. Comparatively, the gross NPL ratio was below the domestic banking industry average of 1.5%. Specific provisions covered 38.9% of NPLs at FYE15 (FYE14: 40.9%), with the remaining exposure covered by the fair value of collateral held. The ratio of NPLs net of provisions to the group’s capital was negligible at 1.8% at FYE15.
BWH’s consolidated pre-tax profit grew by 21.5% to NAD1.1bn in F15 (F14: 23.8%) supported by credit growth, an improved net interest margin, growth in transaction volumes and income from trading activities, and cost containment, despite a rise (100.3%) in loan impairment charges. Overall, the ROaE was 22.4% (F14: 21.9%), and the ROaA remained stable at 2.8% in F15 (F14: 2.8%).
Structural funding concentration and liquidity mismatches reflect the concentration in Namibia’s economy. Funding concentration raises liquidity risk, but strong mitigants including monitoring, and strategies to identify/manage liquidity risk (including unutilised funding lines and liquidity buffers), are in place.
A ratings upgrade would be premised on further diversification and duration extension of funding, additional franchise entrenchment, and (in the case of the South Africa national scale ratings) positive action on Namibia’s sovereign credit ratings. Conversely, a sharp deterioration in the group’s consolidated capital position, earnings and asset quality, could see the ratings come under pressure. Downward pressure could also arise from negative action on the Namibian sovereign ratings.
| NAMIBIAN NATIONAL SCALE RATINGS HISTORY | SOUTH AFRICAN NATIONAL SCALE RATINGS HISTORY |
| Bank Windhoek Holdings Limited | |
| Initial/last rating (not applicable) | |
| Initial/last rating (not applicable) | |
| Long-term: first time/new rating | |
| Short-term rating: first time/new rating | |
| Rating outlook: first time/new rating | |
| Bank Windhoek Limited | |
| Initial rating (September 2005) | Initial rating (November 2013) |
| Long term: AA(NA); Short term: A1+(NA) | Long term: A-(ZA) |
| Outlook: Stable | Outlook: Stable |
| Last rating (November 2014) | Last rating (November 2014) |
| Long term: AA(NA); Short term: A1+(NA) | Long term: A(ZA) |
| Outlook: Stable | Outlook: Stable |
ANALYTICAL CONTACTS
Primary Analyst
Jennifer Mwerenga
Senior Analyst
(011) 784-1771
jennifer@globalratings.net
Committee Chairperson
Omega Collocott
Sector Head: Financial Institution Ratings
(011) 784-1771
omegac@globalratings.net
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
BW rating reports (2005-14)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Bank Windhoek Holdings Limited and Bank Windhoek Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Bank Windhoek Holdings Limited and Bank Windhoek Limited with no contestation of the ratings.
Information received:
- Audited financial results of the group and the banking subsidiary as at 30 June 2015 (plus four years of comparative figures)
- Budgeted financial statements for 2016
- Latest internal and/or external audit report to management
- Reserving methodologies
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative and regulatory framework
The ratings above were solicited by, or on behalf of, Bank Windhoek Holdings Limited and Bank Windhoek Limited, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
| Asset Quality | Asset quality refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (i.e. being paid back in accordance with their terms) and the likelihood that they will continue to perform. |
| Basel II | Basel Committee regulations, which attempt to integrate Basel capital standards with national regulations, by setting the minimum capital requirements of financial institutions with the goal of ensuring institutional liquidity. |
| Capital Adequacy | A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent. |
| Credit Rating | An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories. |
| Credit Rating Agency | An entity that provides credit rating services. |
| Credit Risk | The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due. |
| Creditworthiness | An assessment of a debtor’s ability to meet debt obligations. |
| Debt | An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period. |
| Default | Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default. |
| Diversification | Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in. |
| Downgrade | The assignment of a lower credit rating to a company or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade. |
| Fair Value | The fair value of a security, an asset or a company is the rational view of its worth. It may be different from cost or market value. |
| Financial Institution | An entity that focuses on dealing with financial transactions, such as investments, loans and deposits. |
| Financial Statements | Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time. |
| Franchise | Business or banking franchise; a bank’s business. |
| Impairment | Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments. |
| Liabilities | All financial claims, debts or potential losses incurred by an individual or an organisation. |
| Liquidity | The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price. |
| Liquidity Risk | The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market. |
| Long term | Not current; ordinarily more than one year. |
| National Scale Rating | The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state. |
| Net Interest Margin | Net interest margin is the net interest income divided by average interest earning assets. |
| Non-Performing Loan | When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents. |
| NPL Ratio | The ratio of non-performing loans and advances to total gross loans and advances, expressed as a percentage. |
| Performing Loan | A loan is said to be performing if the borrower is paying the interest on it on a timely basis. |
| Provision | The amount set aside or deducted from operating income to cover expected or identified loan losses. |
| Rating Outlook | A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered). |
| Short Term | Current; ordinarily less than one year. |
| Systemic Risk | Risk associated with the general health or structure of the financial system which would have serious adverse effects on economic conditions or financial stability. |
For a detailed glossary of terms utilised in this announcement please click here
GCR accords an initial rating of AA(NA) to Bank Windhoek Holdings Limited; Outlook Stable
