Johannesburg, 15 Oct 2013 — Global Credit Ratings has affirmed the long term national scale and upgraded the short term national scale issuer ratings assigned to Finbond Group Ltd of BB+(ZA) and A3(ZA) respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an initial international scale rating of BB- to Finbond Group Ltd; with the outlook accorded as Stable. The rating(s) are valid until 10/2014.
Global Credit Ratings has accorded the above credit rating(s) on Finbond Group Ltd based on the following key criteria:
The ratings are supported by Finbond Group Limited’s (“Finbond” or “the group”) new operational status as a mutual savings bank, its growing franchise value, as well as its sound corporate governance structures and experienced management team.
From a structural perspective, the group has naturally transitioned into a more stable growth phase, leveraging off its strengths, namely: leadership – the management team is recruited from the micro-loan and banking fraternity, hence has all the hard skills and expertise to take the business forward and/or respond to challenges; infrastructure – opting to build scale upfront has made the group accessible on a country wide basis, whilst also creating a fair amount of spare capacity; and finally, market prospects – operating in a growth segment, the group benefits from a steady client demand flow.
Operationally, the group’s recent activities have been varied, with observations thereon categorised as follows: capital adequacy – given the current level of shareholder participation, the group is considered suitably capitalised and boasts strong protection ratios (stress tests also confirm a sufficient buffer over risk minima); asset quality – notwithstanding the group’s success in transforming portfolio efficiency, some underlying quality issues remain, particularly the rate at which loan arrears transition through the ageing buckets after a failed payment/s. Here too, stress tests indicate that the group has sufficient resources to withstand and/or absorb a sudden blowout in bad debts; liquidity – note was taken of the group’s improved liquidity profile, as reflected in the upgrade of its short term rating; and profitability – across the board developments were noted, with the group’s profitability recording a net improvement, resulting in positive back-to-back income growth (the first time in five years).
The group’s fragile operating environment increases the error margin on all forward looking scenarios. Nevertheless, a sustained improvement in asset quality, capital and earnings would be positively considered.
The ratings would be sensitive to any weakening in asset quality indicators, long-term earnings (on the back of an uncertain economic environment), a change in market sentiment (given the impact on funding access) or a material decline in capital from current levels. Other pressure points include the impact of new regulations on expenses and business models over the medium term.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2011)|
|Long term: BB(ZA);|
|Last rating (Oct/2012)|
|Long term: BB+(ZA); Short term: B(ZA)|
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kurt Boere|
|Sector Head: Financial Institution Ratings||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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.
Finbond Group Ltd 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 and contested by Finbond Group Ltd with the long term rating maintained and the short term rating upgraded, as further material information was provided by the entity.
The information received from Finbond Group Ltd and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date 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.
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.