Johannesburg, 29 July 2016 — 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 ratings are valid until July 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Guaranty Trust Bank (Kenya) Limited (“GTB Kenya”, “the group”) based on the following key criteria:
The ratings of GTB Kenya reflect its developing, albeit small, regional penetration and appropriate risk management practices partially offset by financial and business volatility across its operating subsidiaries. Furthermore, the ratings are bolstered by the financial and technical support obtainable from Guaranty Trust Bank Plc, domiciled in Nigeria, which holds a 70% stake in the group. GTB Kenya has regional presence, with cross border banking subsidiaries in Uganda and Rwanda collectively accounting for 28.3% (FYE14: 27.6%) of group assets at FYE15.
Capitalisation has remained strong on both nominal and risk-adjusted bases. The group’s regulatory capital grew by 9.5% to KES7.9bn at FYE15, while its Tier 1 and total capital adequacy ratios increased to 25.7% and 26.5% respectively at FYE15 (FYE14: 22.4% and 23.4%).
Asset quality came under additional stress in F15, following a substantial deterioration in F14. As such, the group’s gross non-performing loan (“NPL”) ratio increased to 8.7% at FYE15 (FYE14: 7.4%). Notably, the increase in delinquencies stemmed mainly from legacy loans in the Rwandan and Ugandan operations. On a positive note, provisions were conservatively raised, with the group’s specific provisioning coverage remaining at an acceptable level of 44.5% at FYE15 (FYE14: 42.1%), with the balance covered by collateral.
In F15, operating income grew by 14.0% to KES3.5bn, supported by an improved interest margin (benefiting from a lower cost of funding), as well as an increase in foreign exchange and fee and commission income. However, net profit declined by 4.2% to KES386m due to a rise in costs (as the group continued to upgrade its core banking system and invest in IT platforms), coupled with an increase in impairment charges. Consequently, ROaE and ROaA remained low at 5.2% and 0.9% respectively in F15 (F14: 6.1% and 1.0%). Looking ahead, the deterioration in asset quality could negatively impact earnings generation.
Reflective of the short-term maturity profile of the group’s deposit book (as is typical of the domestic banking system) and it’s longer dated advances portfolio, negative cumulative liquidity gaps were displayed across all maturity buckets at FYE15. However, the liquidity risk presented by the aforementioned asset and liability mismatch is mitigated by the bank’s ample liquid asset base, which accounted for 46.4% of total assets at FYE15 (FYE14: 52.2%).
Strengthening of the group’s competitive position and market share, while maintaining sound financial fundamentals, could lead to upward ratings migration. A continual deterioration in the group’s financial profile, in particular asset quality and profitability, could negatively impact the ratings. Furthermore, downward pressure could stem from weaker penetration in key markets, and/or diminished shareholder support.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2007)|
|Long-term: BBB(KE); Short-term: A2(KE)|
|Last rating (July 2015)|
|Long-term: BBB+(KE) ; Short-term: A2(KE)|
|Primary Analyst||Committee Chairperson|
|Kuzivakwashe Murigo||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Kenya Bank Statistical Bulletin 2015 (December 2015)
Kenya Operating Overview (May 2016)
GTB Kenya rating reports (2007-15)
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 ratings have 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 ratings included:
- Audited financial results of Guaranty Trust Bank (Kenya) Limited as at 31 December 2015 (plus four years of comparative numbers);
- Unaudited interim results of Guaranty Trust Bank (Kenya) Limited as at 30 June 2016;
- Budgeted financial statements for 2016;
- Latest internal and/or external audit report to management;
- A breakdown of facilities available and related counterparties;
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS SECTOR 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.|
|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.|
|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.|
|Downgrade||The assignment of a lower credit rating to a company or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|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.|
|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.|
|Margin||The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account (including taxes).|
|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 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.|
|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.|
|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 Guaranty Trust Bank (Kenya) Limited’s rating of BBB+(KE) ; Outlook Stable.