Johannesburg, 12 Jul 2013 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to Trustco Group Holdings Limited of BBB-(NA) and A3(NA) respectively; with the outlook accorded as Stable. The rating(s) are valid until 7/2014.
RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Trustco Group Holdings Limited based on the following key criteria:
The ratings underpin Trustco Group Holdings Limited’s (“Trustco” or “the group”) growing franchise in micro- finance and insurance, across the main southern-African markets, as well as its sound capitalisation and loan/credit portfolio quality. Further, the ratings do not incorporate any systemic support uplift, given the low intervention prospect. The outlook/s on the ratings, in turn, reflect a forward looking view around the sustainability of the group’s performance, and takes into account its overall strategic focus/direction.
In general, the group continues to build capital at a rate in excess of what is being consumed for organic growth, with all floor minimums satisfied. Further, the atypical earnings and retention trend was offset by a fresh equity issue during the year; and while that helped boost the group’s capital ratios, the share price and market capitalisation fell hard (albeit post the release of the group’s financial statements).
Portfolio quality within the group’s credit/lending business remained strong; the micro-finance unit registered only a small increase in impairments – although, with arrears fully covered by provisions, default risk is considered low; the mortgage finance unit reflected a similar position with no arrear accounts (with that a genesis, fully secured portfolio).
Reflecting the cyclical nature of the local property market (and lower asset offload activity), as well as the recent cost impact of the South African micro-insurance unit, the consolidated results of the group fell sharply, reversing the upward trend in revenue. However, though the year-end turnout is well below expectations, the group’s long-term trend is still within acceptable norms, whilst its outlook is positive; the performance should be seen in the context of a business undergoing a notable shift in its operation – yet, the change does not come without its fair share of caution.
Positive rating movement/s: The variability seen in the group’s income and operational business structure invariably increases the error margin on all forward looking scenarios, offsetting any upgrade.
Negative rating movement/s: The ratings will be sensitive to a slide in asset quality, long-term earnings and/or a decline in capital levels.
NATIONAL SCALE RATINGS HISTORY | |
Initial rating (Aug/2012) | |
Long term: BBB-(NA); Short term: A3(NA) | |
Outlook: Stable | |
Last rating (Aug/2012) | |
Long term: BBB-(NA); Short term: A3(NA) | |
Outlook: Stable | |
ANALYTICAL CONTACTS | |
Primary Analyst | |
Dirk Greeff | |
Sector Head: Financial Institution Ratings | |
+27 11 784 1771 | |
dgreeff@globalratings.net | |
Committee Chairperson | |
Jennifer Mwerenga | |
Senior Analyst | |
+27 11 784 1771 | |
jennifer@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria For Rating Banks, 2013
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.
RATING LIMITATIONS AND DISCLAIMERS
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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.
Trustco Group Holdings 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 Trustco Group Holdings Limited with no contestation of the rating.
The information received from Trustco Group Holdings Limited 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.