Johannesburg, 25 Jun 2014 — Global Credit Ratings has affirmed the national scale long term rating assigned to Commercial Bank of Africa Limited of AA-(KE) and upgraded the national scale short term rating to A1+(KE); with the outlook accorded as Stable. The rating(s) are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Commercial Bank of Africa Limited based on the following key criteria:
The ratings of Commercial Bank of Africa Limited (“CBA” or “the bank”) are buoyed by its strong track record and recognised regional franchise value.
Core capital stood at KShs10.4bn as at FYE13, representing a 6.9% growth, driven by retained earnings. Notwithstanding the increase in risk weighted assets, the bank’s capital adequacy ratios remained above the statutory prudential guidelines.
Non-performing loans (“NPLs”) declined to 3.8% of gross loans as at FYE13 (FYE12: 4.7%), though masked, to some extent, by the expanded loan book. GCR notes that this is well below the industry average of 5.2%, although the 2.8x increase in past due but not impaired loans requires greater emphasis to be placed on the bank’s collection processes.
Despite declining interest rate margins, operating income displayed a 20.6% growth during F13, driven by fee & commission income and strong balance sheet growth. The solid growth in operating income enabled the bank to absorb increased operating expenses, as well as increased provision charges, resulting in a 10.1% increase in pre-tax profits to KShs4.8bn in F13.
The bank maintains robust liquidity buffers, with liquid assets accounting for 50.2% of short-term funding and 44.3% of total assets at FYE13 (FYE12: 54.9% and 46.7% respectively). Also noted, is the considerable reduction in the bank’s 30-day contractual maturity bucket deficit, which fell to KShs8.1bn at FYE13 (FYE12: KShs28.7bn), equating to 57.8% of capital (FYE12: 2.3x of capital). However, while a structural industry feature, the continual asset and liability mismatch raises some degree of concern.
A positive rating action could be triggered by improvement in balance sheet strength, coupled with the maintenance of sound financial fundamentals on an on-going basis, and further growth in market share. Negative rating implications could arise from structural problems in CBA’s markets of operation and a significant increase in leverage, as well as a deterioration in asset quality.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2007)
Long term: AA-(KE); Short term: A1+(KE);
Last rating (Jun/2013)
Long term: AA-(KE); Short term: A1(KE);
Head: Financial Institution Ratings
Junior Credit Analyst
Head: Insurance Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated April 2014)
Kenyan Bank Bulletin (November 2013)
Glossary of Terms/Ratios (February 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Commercial Bank of Africa 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 Commercial Bank of Africa Limited with no contestation of the rating.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
The information received from Commercial Bank of Africa Limited and other reliable third parties to accord the credit rating included the December 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, March 2014 management accounts, corporate governance and enterprise risk framework, reserving methodologies, regulatory framework, a breakdown of facilities available and related counterparties.
GCR affirms Commercial Bank of Africa Limited’s rating of AA-(KE); Outlook Stable.