Announcements

GCR Affirms Bank Windhoek Limited’s Rating Of AA(NA); Outlook Stable

Johannesburg, 20 Nov 2014—Global Credit Ratings has affirmed the long term national scale and short term national scale issuer ratings assigned to Bank Windhoek Limited of AA(NA) and A1+(NA) 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 rating(s) to Bank Windhoek Limited (“Bank Windhoek”, “the bank”) based on the following key criteria:

Bank Windhoek’s ratings reflect its substantial local franchise, stable capitalisation and earnings generation, enhanced risk management framework, and conservative risk appetite. The national scale ratings reflect the high likelihood of shareholder/government support, should it be required. The rating outlooks consider Bank Windhoek’s strong market position and prospects (and continued strategic focus on funding diversification, liquidity management and streamlining internal processes) within the context of buoyant economic growth in Namibia, tempered by uncertainty regarding the global recovery.

Structural funding concentration and liquidity mismatches reflect the concentration in Namibia’s economy. Wholesale funding has remained stable at 74% of funding in F13-F14 (with increases in NCDs/debt securities improving diversification), and the top 20 deposits comprised 44.7% of total (63.4% of wholesale) funding at FYE14, slightly improved since FYE13. Funding concentration raises liquidity risk, but strong mitigations including monitoring and strategies to identify/manage liquidity risk (including unutilised funding lines and liquidity buffers) are in place.

Loan growth of 14.7% in F14 (F13: 14.0%) was in line with Namibian credit market growth. Supported by positive trends in corporate and consumer health, the bank’s credit quality metrics continued to improve, with the gross non-performing loan (“NPL”) ratio declining to a review-period low of 0.7%. NPLs were fully covered by collateral and/or specific provisions.

In F14, operating income grew 15.8% to NAD1,606m and net profit rose 21.5% to NAD533m. The F14 financial performance reflects stability in almost all key profitability metrics. ROaE was 21.3% (F13: 21.9%), and ROaA continued its stable upward trajectory, rising to 2.4% in F14 (from 1.9% in 2010). The capital adequacy ratio of 14.1% at FYE14, the ability of internal capital generation to support organic growth rates, strong risk management environment and controlled credit/liquidity risk support the bank’s conservative, stable development prospects.

Upward rating pressure would require further diversification and duration extension of funding, additional franchise entrenchment, and positive action on Namibia’s sovereign credit ratings. The ratings will be sensitive to declining asset quality, long-term earnings and/or capitalisation levels, as well as downward pressure on the Namibian sovereign ratings.

NAMIBIAN NATIONAL SCALE RATINGS HISTORY SOUTH AFRICAN NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2005) Initial rating (Nov/2013)
Long term: AA(NA); Short term: A1+(NA) Long term: A-(ZA)
Outlook: Stable Outlook: Stable
Last rating (Jul/2014) Last rating (Jul/2014)
Long term: AA(NA); Short term: A1+(NA) Long term: A(ZA)
Outlook: Stable Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Omega Collocott
Head: Financial Institution Ratings
(011) 784-1771
Omegac@globalratings.net

Committee Chairperson
Jennifer Mwerenga
Sector Credit Analyst
(011) 784-1771
Jennifer@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Banking Criteria (updated April 2014)
Previous Rating Reports (up to 2013)

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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

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 rating/s has been disclosed to Bank Windhoek Limited with no contestation of the rating.

The information received from Bank Windhoek Limited and other reliable parties to accord the rating included the 30 June 2014 audited financial statements (plus four years of comparative numbers), 2015 budgeted financial statements, latest internal and/or external management reports, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, industry comparative data and regulatory framework, and a breakdown of facilities available and related counterparties.

The ratings above were solicited by, or on behalf of, 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

Audited Financial Statements

Financial statements that have been audited by a certified auditor, stating that the financial statements present a true and fair picture of the entity’s financial condition.

Bad Debt

All or portion of an account, loan, or note receivable considered to be uncollectible.

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.

Collateral

Asset provided to a creditor as security for a loan.

Corporate Governance

The manner in which an entity is governed and decisions are undertaken.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit risk

Risk that a party to a contractual agreement or transaction will be unable to meet their obligations or will default on commitments. Credit risk can be associated with almost any transaction or instrument such as swaps, repos, CDs, foreign exchange transactions, etc. Specific types of credit risk include sovereign risk, country risk, legal or force.

Default

Failure to make loan payments on a timely basis or to comply with other terms/requirements as stipulated in the loan agreement.

Diversification

The principle that a portfolio in which assets are separated into different industry sectors, geographic regions and firms will embody less overall risk than one in which assets are concentrated into a few sectors, regions and firms.

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 and its results of operations for a period then ended.

Franchise

Business or banking franchise; a bank’s business.

Income Statement

Summary of the effect of revenues and expenses over a period of time.

Liquidity Risk

Liquidity is the ability to fund increases in assets and meet obligations as they become due, without incurring unacceptable losses.

Non-performing loan

When a borrower is overdue, typically 90 + days in arrears or as defined in the transaction documents.

Rating Outlook

A rating outlook indicates the potential direction of a rating over the medium term, typically a one to two year period.

Risk Appetite

The quantum of risk the group is willing to accept in pursuit of its business strategy. Risk appetite is expressed quantitatively as risk measures such as economic capital and risk limits, and qualitatively in terms of policies and controls.

Risk Management

Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.

Risk Management Framework

An outline for the management of a risk more fully developed or described elsewhere.

Sovereign Risk

The risk of default by the government of the country on its obligations.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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