Announcements

GCR affirms Capricorn Investment Group Limited’s and Bank Windhoek Limited’s ratings of AA(NA);

Johannesburg, 29 Nov 2016 – Global Credit Ratings has affirmed the national scale ratings assigned to Capricorn Investment Group 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 Capricorn Investment Group Limited (“Capricorn Group”, “the Group”) and Bank Windhoek Limited (“BW”) based on the following key criteria:

The ratings of Capricorn Group reflect its strong market position in the Namibian banking industry and significant presence in the insurance and asset management markets, as well as its stable capitalisation and earnings generation, adequate risk management framework and conservative risk appetite. While GCR expects the Group to remain resilient, the prevailing domestic macroeconomic challenges (including significantly weaker forecasts for real GDP growth) and an uncertain global economic outlook, increases downside risk for Capricorn Group’s (and the financial sector in general) asset quality metrics and earnings generation. The South African national scale rating may also be influenced by the relative sovereign ratings of South Africa and Namibia and the Group’s credit quality relative to the South African peer universe.

The Group’s leading operating subsidiary, Bank Windhoek Limited (“BW”), is the largest locally owned bank and second largest commercial bank in Namibia. BW contributed 98.2% (FYE15: 98.1%) of the Group’s consolidated assets at FYE16 and 86.6% (FYE15: 88.9%) 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, based on BW’s high systemic importance, stemming from its substantial market shares (about 30.6% and 29.4% by assets and deposits respectively at 30 June 2016).

The Group maintained a strong capital position on a consolidated basis as measured by the Bank of Namibia’s capital adequacy requirements for banking groups. Capricorn Group reported a total risk weighted capital adequacy ratio of 15.8% at FYE16 (FYE15: 15.8%) and Tier 1 risk based capital ratio of 14.3% (FYE15: 13.7%), which were well above the regulatory minima of 10% and 7% respectively, providing a sufficient buffer to absorb credit losses.

Capricorn Group’s overall asset quality remains sound despite a 36.2% increase in non-performing loans (“NPLs”) at FYE16 (FYE15: 87.2%). The increase was mainly due to the downgrade of a large corporate exposure to loss category. Accordingly, the gross NPL ratio rose to 1.3% at FYE16 from 1.1% at FYE15. Specific provisions covered 33.3% of NPLs at FYE16 (FYE15: 38.9%), with the remaining exposure covered by collateral. The Group’s unreserved NPLs relative to regulatory capital ratio remained low (5.6%) at FYE16. Looking ahead, the Group will remain cautious and vigilant in growing its quality loan portfolio and continue to focus on sound credit management practices to contain NPL formation.

The Group has posted stable earnings performance with a five year profit after tax CAGR of 22.5%. Profitability indicators improved in F16 with consolidated ROaE and ROaA increasing to 22.9% (F15: 22.4%) and 3.0% (F15: 2.8%) respectively.

Structural funding concentration and liquidity mismatches reflect the concentration risk 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.

Additional franchise entrenchment, strong liquidity and loss-absorption buffers and steady operating metrics throughout the economic cycle will further strengthen the Group’s financial profile. However, the Group’s significant market position, strong credit profile and high probability of state support limits the likelihood of rating changes over the medium term. A sharp deterioration in the capital position, liquidity, earnings and asset quality, could see the ratings come under pressure.

*Formerly Bank Windhoek Holdings Limited.

NATIONAL SCALE RATINGS HISTORY   SOUTH AFRICAN NATIONAL SCALE RATINGS HISTORY

Capricorn Investment Group Limited

   
Initial rating (November 2015)    
Long term: AA(NA); Short term: A1+(NA)    
Outlook: Stable    
     
Last rating (January 2016)    
Long term: AA(NA); Short term: A1+(NA)    
Outlook: Stable    
     
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 (January 2016)   Last rating (January 2016)
Long term: AA(NA); Short term: A1+(NA)   Long term: A+(ZA)
Outlook: Stable   Outlook: Stable
     

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Jennifer Mwerenga   Omega Collocott
Senior Analyst   Sector Head: Financial Institution Ratings
(011) 784-1771   (011) 784-1771
jennifer@globalratings.net   omegac@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016

BW rating reports (2005-15)

BWH rating report (2015)

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.

Capricorn Investment Group 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 Capricorn Investment Group 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 2016 (plus four years of comparative figures)
  • Budgeted financial statements for 2017
  • 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, Capricorn Investment Group 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 A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
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 (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.
Audit Report A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).
Budget Financial plan that serves as an estimate of future cost, revenues or both.
Capital The sum of money that is invested to generate proceeds.
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 Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating Agency An entity that provides credit rating services.
Downgrade The assignment of a lower credit rating to a company or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
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.
Forecast A calculation or estimate of future financial events.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
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.
Long-Term Rating Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
National Scale Rating 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.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Regulatory Capital The total of primary, secondary and tertiary capital.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
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.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Short-Term Current; ordinarily less than one year.
Short-Term Rating An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
   

For a detailed glossary of terms utilised in this announcement please click here

GCR affirms Capricorn Investment Group Limited’s and Bank Windhoek Limited’s ratings of AA(NA); Outlook Stable.

image_pdfPDF View

Leave a Reply



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.

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.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.