Announcements

GCR affirms Ecobank Ghana Limited’s rating of AA-(GH); Outlook Stable

Johannesburg, 11 Dec 2014 – Global Credit Ratings has affirmed the national scale ratings assigned to Ecobank Ghana Limited of AA-(GH) and A1+(GH) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until 12/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Ecobank Ghana Limited (“Ecobank”, “the bank”) based on the following key criteria:

The accorded ratings reflect Ecobank’s established domestic franchise value, resilient financial performance, risk appropriate capitalisation and adequate loan loss reserves. These are however, partially offset by shifts in both global and domestic risk dynamics, which continue to negatively impact the local economy.

Ecobank is a subsidiary of Ecobank Transnational Incorporated (“ETI”), a Pan-African financial services group with operations spanning 36 African countries. ETI had a capital base of US$2.3bn and assets amounting to US$23.4bn at 30 June 2014. The level of technical and financial support provided by the bank’s parent, coupled with the ability to leverage off the strong brand name, was favourably considered. The ratings also reflect GCR’s view that as a systemically important financial institution in Ghana, (being the country’s largest commercial bank with a market share of 14.0% of banking industry deposits at FYE13), support from the regulatory authorities, in case of need, is highly likely.

The bank is adequately capitalised with a total risk weighted capital adequacy (“RWCA”) ratio of 13.7% at FYE13 (FYE12: 14.8%), against a prudential minimum of 10%. Challenging macroeconomic conditions and loan arrears growth, largely emanating from the Small-and-Medium Sized Enterprises (“SMEs”) and local corporates loan portfolio acquired from Trust Bank, continued to drag on portfolio performance in F13. Gross non-performing loans (“NPLs”) grew by 77.5% (FYE12: 74.3%) to GH¢131.9m at FYE13. Consequently, the gross NPL ratio increased to 5.9% (FYE12: 5.1%) at FYE13, although this was moderated by loan growth and writes-offs (GH¢20.7m). The gross loan book grew by 52.5% (FYE12: 68.5%) to GH¢2.2bn at FYE13, compared to the average industry growth rate of 32.1%. Despite the growth in arrears, Ecobank’s gross NPL ratio was well below the industry average of 12.0% at FYE13. Total provisions covered 71.2% of gross NPLs at FYE13 (FYE12: 79.8%), with the balance covered by collateral. Net NPLs remained negligible relative to capital (0.1% at FYE13). However, cognisance must also be taken of the general lag in the arrears experience following rapid loan growth.

Net profit before tax of GH¢267.9m was reported for F13, up 43.8% from F12. Profitability, as measured by ROaE and ROaA, amounted to 37.5% (F12: 36.9%) and 4.7% (F12: 4.8%) respectively, compared to the industry average of 27.3% and 4.0% respectively. Ecobank’s liquidity risk profile is tightly controlled, with liquidity maintained well within internal and regulatory targets.

Cognisance was taken of the bank’s standalone performance and positive developments at its parent company (ETI) level, i.e. new strategic shareholders in the form of Nedbank Group Limited (“Nedbank”) and Qatar National Bank (“QNB”), although moderated by the deteriorating operating environment. An improvement in operating conditions, a positive earnings trend, strong asset quality indicators and further strengthening of the bank’s competitive position could lead to an upward ratings migration. Weaker earnings, as well as asset quality problems associated with inadequately controlled growth, given the deteriorating economic environment (on the back of a less favourable global outlook) could see the ratings come under pressure.

NATIONAL SCALE RATINGS HISTORY

Initial/Last rating (Dec/2013)
Long term: AA-(GH); Short term: A1+(GH)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Jennifer Mwerenga
Senior Credit Analyst
(011) 784-1771
jennifer@globalratings.net

Committee Chairperson
Omega Collocott
Head: Financial Institution Ratings
(011) 784-1771
omegac@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Banking Criteria (updated April 2014)
Previous Rating Report (December 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.

The ratings above were solicited by, or on behalf of, Ecobank Ghana Limited, and therefore, GCR has been compensated for the provision of the ratings.

Ecobank Ghana 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 Ecobank Ghana Limited with no contestation of the rating.

The information received from Ecobank Ghana Limited and other reliable third parties to accord the credit rating included the 31 December 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external management reports, 30 September management accounts, 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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY

Asset Quality

The ability of a bank’s assets, especially its loans, to continue to perform according to its terms and generate net interest income for the bank.

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.

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.

NPL Ratio

The ratio of non-performing loans and advances to total gross loans and advanced expressed as a percentage.

Sovereign Risk

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

GCR affirms Ecobank Ghana Limited’s rating of AA-(GH); Outlook Stable

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