GCB Bank Limited, one of the state own
banks in the country has been rated negative by Moody’s Investors Service as
the bank’s deposit ratings have been lowered to negative from stable.
Moody’s action takes into consideration of GCB’s
B1 local-currency long-term deposit ratings and B2 foreign-currency deposit
ratings.
Moody’s rating on GCB was as the change in
the outlook on Ghana’s B1 government bond ratings to negative on December 5,
2013. This was contained in a statement released by the investors on December
10, 2013.
According to Moody’s the action “reflect
the risk of further weakening in the government’s capacity to support the bank
in case of need; and GCB’s high exposure to government securities, which links
the bank’s standalone creditworthiness to that of the sovereign.”
It, however, indicated that it is likely to
downgrade GCB’s deposit ratings if the Ghana’s sovereign creditworthiness
weakens further.
Full Statement: Moody’s
on Ghana Commercial Bank’s deposit ratings
Moody’s Investors Service has changed to
negative from stable the outlook on Ghana Commercial Bank Limited’s B1
local-currency long-term deposit ratings and B2 foreign-currency deposit
ratings.
Concurrently, these deposit ratings and the
E+ standalone bank financial strength rating (which maps to a b2 baseline
credit assessment) were affirmed.
The rating actions follow the change in the
outlook on Ghana’s B1 government bond ratings to negative on December 5, 2013.
The rating actions reflect (1) the risk of
further weakening in the government’s capacity to support the bank in case of
need; and (2) Ghana Commercial Bank’s high exposure to government securities,
which links the bank’s standalone creditworthiness to that of the sovereign.
Ratings rationale
Weakening capacity of
the government to provide support
Today’s rating actions reflect the risk of
a further weakening in the capacity of the Ghanaian government to support Ghana
Commercial Bank in case of need. This assessment is reflected by the negative
outlook on Ghana’s sovereign B1 bond rating, which is driven by:
(1) the government’s weak fiscal
fundamentals and rising debt levels, which reflect both continued spending
overruns and relatively low revenue ratios compared with rating peers, despite
rapid growth; and
(2) the weakening of Ghana’s external
position on the back of large external imbalances and a low level of
foreign-exchange reserves, which have increased the country’s susceptibility to
event risk in view of the strong correlation between domestic economic activity
and the global business and commodity cycles.
While Moody’s currently believes that the
government’s capacity and commitment to support Ghana Commercial Bank warrants
a one-notch systemic support uplift in the banks’ deposit ratings, a downgrade
of the government debt rating would prompt Moody’s to reassess this one-notch
rating uplift.
High exposure to
government securities signals high interlinkages with sovereign credit risk
Moody’s notes that today’s rating action is
also driven by the extensive links between Ghana Commercial Bank’s balance
sheet and sovereign credit risk, owing to the banks’ high direct exposures to
government securities.
According to the bank’s financial
statements and Moody’s estimates, the bank’s exposure to government credit risk
(i.e., investments in government securities, central bank balances and public
sector loans) stood at around 70% of total assets at year-end 2012 or 9x its
Tier 1 capital.
In addition, while Moody’s notes material
improvements in Ghana Commercial Bank’s profitability and capitalisation
metrics over the past 18-24 months, the domestic market remains the predominant
focus of the bank’s operations and the operating environment is susceptible to
event risk at the sovereign level.
What could move the
ratings down/up
Moody’s will likely downgrade Ghana
Commercial Bank’s deposit ratings if the Ghanaian sovereign’s creditworthiness
weakens further, leading to (1) a weakened capacity of the government to
provide support, and/or (2) an increase in the credit risks embedded in the
bank’s loan and securities portfolios.
Although upward pressure on Ghana
Commercial Bank’s ratings is currently limited, improvements in the domestic
operating environment and sovereign’s credit risk profile that could prompt
Moody’s to change the outlook on Ghana Commercial Bank’s deposit ratings to
stable.
Credit:
GBN
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