Johannesburg, 11 January, 2019 — Global Credit Ratings has assigned to I&M Bank (Rwanda) PLC long-term and short-term national scale ratings of A-(RW) and A2(RW) respectively; with the outlook accorded as Stable. The ratings are valid until November 2019.
SUMMARY RATINGS RATIONALE
Global Credit Ratings (“GCR”) has assigned the above credit ratings to I&M Bank (Rwanda) PLC (“I&M Rwanda”, “the bank”) based on the following key criteria:
The ratings on I&M Bank reflect its solid market position, including good revenue diversity and stability, just adequate levels of capitalisation, strong cost of risk and high lending concentrations, with stable deposit-based funding, albeit with some short-term concentrations, and solid liquidity.
The competitive profile of the bank is a positive for the ratings. Kigali based-I&M Rwanda operates exclusively in the small and concentrated Rwandan banking sector. With total assets of approximately USD325m as of 1H18, I&M Rwanda operates in the top tier of banks in the country, with competitive advantage derived from corporate/institutional banking and amongst local high net wealth individuals. The revenue stability has been good and benefits from a good split of revenues across the main business lines. We consider management and governance to be a neutral factor for the ratings, broadly comparing well to regional peers.
The financial profile is broadly positive for the ratings. Capitalisation is just adequate, somewhat pressurised by slower internal capital generation than risk-weighted asset growth. The loan concentrations are very high, which is typical for the top tier banks operating in Rwanda. However, the cost of risk (asset quality) has been strong for the bank over the past few years. The funding and liquidity position of the bank is a neutral rating` factor. At 1H18, deposits accounted for 96% of the funding base. Due to this, the funding structure is considered to be broadly stable, with some weaknesses that the ample liquidity more than adequately covers. The bank registered a GCR stable funds ratio of 118% at 1H18.
GCR views the outlook as stable, balancing our expectations that continued good economic growth will support the robust earnings profile and strong asset quality. Although not anticipated, GCR could raise the ratings if the bank materially lowers its loan concentrations, improves its franchise and/or is awarded the status of a domestically systemic important bank (DSIB) status without materially affecting its cost of risk, all else being equal. Ratings may be lowered following a deterioration in capital adequacy to a level below 16%, a reduction in security coverage on the largest loans, and/or an increase in the cost of risk to a level above 2%.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (November 2018)|
|Long-term: A-(RW); Short-term: A2(RW)|
|Primary Analyst||Secondary Analyst|
|Matthew Pirnie||Nyasha Chikwengo|
|Sector Head- Financial Institutions||Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Structured Finance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions (March 2017)
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 process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
I&M Bank (Rwanda) PLC participated in the rating process via face-to-face management meetings, teleconference meetings 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 I&M Bank (Rwanda) PLC.
Information received from I&M Bank (Rwanda) PLC and other reliable third parties to accord the credit ratings included:
- Audited financial results of the group as at 31 December 2017 (plus four years of comparative figures);
- Audited interim results of the group as at 30 June 2018;
- Budgeted financial statements for 2018;
- Latest internal and/or external audit report to management;
- A breakdown of facilities available and related counterparties;
- Industry comparative and regulatory framework.
The ratings above were solicited by, or on behalf of, I&M Bank (Rwanda) PLC, and therefore, GCR has been compensated for the provision of the ratings.
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.|
|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.|
|Basel||Basel Committee on Banking Supervision housed at the Bank for International Settlements.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|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.|
|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.|
|Customer Deposit||Cash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.|
|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.|
|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.|
|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.|
|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.|
|Past Due||Any note or other time instrument of indebtedness that has not been paid on the due date.|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
|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 please click here
GCR assigns I&M Bank (Rwanda) PLC a National Scale Rating of A-(RW); Outlook Stable.