Announcements Criteria Research

GCR Publishes Financial Institutions Sector Risk Scores for Ghana And Rwanda

Johannesburg, 15 July 2019: GCR Ratings (“GCR”) has published the Financial Institutions Sector Risk Scores for Ghana and Rwanda.

These Financial Institution Sector Risk Scores are available for download at https://gcrratings.com/risk-scores/.

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 at https://gcrratings.com/risk-scores/, supersedes the  article published on 2 July 2019.

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.

Rwanda Financial Institutions Sector Risk Score: 4

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.

Analytical contacts

Primary analyst Matthew Pirnie Sector Head: Financial Institutions
Johannesburg, South Africa MatthewP@GCRratings.com +27 11 784 1771

Related criteria and research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Country Risk Scores: June 2019
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