The GCR Financial Institutions Sector Risk Assessment
The financial institutions sector risk score, assessed on a
scale between 0-15, is important in a number of ways. Firstly, as a key factor
in the operating environment component score. The core of the GCR Ratings
Framework is based on GCR’s opinion that an entity’s operating environment
largely frames its creditworthiness. As a result, the operating environment
analysis anchors the underlying risk score for the GCR ratings methodology.
Financial institutions are especially vulnerable to these factors. GCR combines
elements of the country risk and sectoral risk analysis, blended across
countries for entities operating across multiple jurisdictions, to anchor a
financial institution to its current operating conditions. Furthermore, the
operating environment (the country risk score combined with the financial
sector risk score) creates the floor from which government support can be
provided for banks and the hurdle which may cap risk scores for entities
significantly exposed to one jurisdiction. For more details on any of the
above, please read the related criteria and research listed above.
GCR will periodically publish updated “Financial
Institutions Sector Risk Scores”, which will supersede previous publications. The
publication titled “Financial Institutions Sector Risk Scores, 15 July 2019”, available
supersedes the article published on 2
Financial Institutions Sector Risk Scores (0-15)
Ghana Financial Institutions Sector Risk Score: 2
The Ghanaian financial institutions sector risk score of ‘2’
is restrained by the weak but improving fiscal position of the government and
state-owned enterprises, the currently high stock of sector wide non-performing
loans of approximately 19% at April 2019 and moderately high foreign currency
lending (33% of total loans). We also consider the banking sector to be
somewhat fragmented, regulated in line with regional norms, adequately
capitalised (average around 17% at April 2019) and profitability to be sound. Local
deposits are the primary funding source, with limited wholesale or external
funding. Fixed income markets are underdeveloped.
The Rwandan financial institutions sector risk score of ‘4’ balances
the low wealth, the moderate size and diversification of the economy with modest
levels of non-performing and foreign currency loans versus regional peers, and
regulation which is deemed to be appropriate from its current levels of
development and complexity. We consider the sector to be somewhat overbanked
given the size of the economy. We note that the top tier of the sector is
controlled by a few players but that regional banks are increasingly
competitive in the country. Positively, the banking sector appears to be well
capitalised on average, but profitability can be modest. Funding is largely
deposit based, with limited wholesale and external funding. The local capital
markets are underdeveloped.
Sector Head: Financial Institutions
Johannesburg, South Africa
+27 11 784 1771
Related criteria and research
Criteria for the GCR Ratings
Framework, May 2019
Criteria for Rating Financial Institutions,
GCR Country Risk Scores: June 2019
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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