Johannesburg, 28 Jul 2015 — Global Credit Ratings has affirmed the national scale ratings assigned to Guaranty Trust Bank (Kenya) Limited of BBB+(KE) and A2(KE) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until July 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Guaranty Trust Bank (Kenya) Limited (“GTB Kenya”, “the group”) based on the following key criteria:
GTB Kenya has regional presence, with cross border banking subsidiaries in Uganda and Rwanda, collectively accounting for 27.6% of the group’s consolidated assets at FYE14 (FYE13: 30.0%).
The group’s ratings reflect its developing, albeit small, regional penetration, appropriate risk management practices, and sound credit profile, partially offset by financial and business volatility across its operating subsidiaries.
GTB Kenya underwent a change in ownership in December 2013 that saw Guaranty Trust Bank Plc (“GTB Plc”, “the parent”) acquire a 70.0% shareholding in the group. GTB Kenya’s ratings are underpinned by GTB Plc’s capacity to provide support to the group, and the ability of the group to leverage off the parent’s extensive continental presence.
GTB Kenya’s capital position remained strong, with a total risk weighted capital adequacy ratio (“CAR”) of 23.4% at FYE14.
The group’s impaired loans to gross loans ratio increased to 7.4% at FYE14 (FYE13: 6.1%). Furthermore, the group’s past due but not impaired loans rose 4.6x in F14. Collectively, the group’s past due and impaired loans comprised 19.8% (FYE13: 9.1%) of gross loans at FYE14. Nevertheless, the loan pool is suitably covered, via provisions, collateral and capital.
Despite variability of earnings across operating jurisdictions, the group’s net attributable income increased by 41.4% to KES403m in F14, albeit coming off a low base.
The group maintained high levels of liquid assets (constituting 52.2% of balance sheet assets at FYE14) and adequate liquidity buffers, reflected by its prudential liquidity ratio, which remained well above the regulatory minimum throughout F14.
The group’s developing infrastructure and broader product offering is expected to help boost growth in funding and lending and also diversify its revenue sources going forward.
Strengthening of the group’s competitive position and ability to substantially enhance its market share, while maintaining sound financial fundamentals, could lead to upward ratings migration. A ratings downgrade may be triggered by deterioration in the group’s financial profile, weaker penetration in key markets, and/or diminished shareholder support.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2007)|
|Long term: BBB(KE); Short term: A2(KE)|
|Last rating (Jul/2014)|
|Long term: BBB+(KE); Short term: A2(KE)|
|Sector Head: Financial Institution Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
Kenya Bank Statistical Bulletin (June 2015)
GTB Kenya rating reports (2007-14)
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.
Guaranty Trust Bank (Kenya) 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 Guaranty Trust Bank (Kenya) Limited with no contestation of the rating.
The ratings above were solicited by, or on behalf of, Guaranty Trust Bank (Kenya) Limited, and therefore, GCR has been compensated for the provision of the ratings.
The information received from Guaranty Trust Bank (Kenya) Limited and other reliable third parties to accord the credit rating/s included:
- Audited financial results of Guaranty Trust Bank (Kenya) Limited and its subsidiaries as at 31 December 2014 (plus four years of comparative numbers);
- Unaudited interim results of Guaranty Trust Bank (Kenya) Limited and its subsidiaries as at 30 June 2015;
- Budgeted financial statements for 2015;
- 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;
- Capital management policy; and
- Industry comparative data and regulatory framework.
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.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|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||Corporate governance broadly 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||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Downgrade||The assignment of a lower credit rating to a company or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|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.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|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.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|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.|
|National Scale Rating||The national scale 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.|
|Past Due||Any note or other time instrument of indebtedness that has not been paid on the due date.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|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.|
|Securities||Various instruments used in the capital market to raise funds.|
|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.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|