By Business Reporter
GLOBAL Credit Ratings (GCR) has affirmed the national scale ratings assigned to Capricorn Investment Group Limited (CIG) of AA(NA) and A1+(NA) in the long-term and short-term, respectively, with the outlook accorded as Stable.
GCR has also affirmed the same long-term and short-term national scale ratings assigned to CIG subsidiary, Bank Windhoek Limited (BW).
Furthermore, GCR has affirmed the long-term South African national scale (Rand) issuer rating of A+(ZA) assigned to Bank Windhoek Limited, with the outlook accorded as Stable.
The accorded ratings reflect CIG’s strong domestic market share in the Namibian banking industry and significant presence in the asset management and insurance markets.
The ratings also reflect the Capricorn Group’s risk appropriate capitalisation, comfortable liquidity, resilient earnings performance, as well as further earnings and geographic diversity, from its recent acquisitions (January 2017) of banking operations in Zambia and Botswana, contributing a combined 17.9 percent to the group’s consolidated assets at FY17 (30 June 2017) and 3.8 percent of pre-tax profits.
“While GCR expects the group to remain resilient, the prevailing economic challenges (including weak growth prospects in Namibia) and an uncertain global economic outlook, will continue to put pressure on Capricorn Group’s (and the financial sector in general’s) earnings and asset quality metrics. The South African national scale rating may also be influenced by the relative sovereign ratings of South Africa and Namibia and the group’s credit quality relative to the South African peer universe,” said the agency.
Further underpinning the ratings is the potential support from the group’s largest shareholders Capricorn Investment Holdings Limited (CIH) with a 40.7 percent stake and the Government Institutions Pension Fund (GIPF), with 26 percent shareholding.
GIPF, the largest institutional investor in Namibia, with a net asset value of about N$100 billion, acquired 25 percent of the group’s shares in May 2017. The GIPF, together with CIH, became the shareholders of reference for the group. GIPF has shown its commitment as Capricorn Group’s reference shareholder by extending long-term senior debt funding of N$1.3 billion to the group.
Likewise, CIH also committed to provide 10-year debt funding, amounting to N$900 million.
The funding lines enabled the group to make available committed contingent funding facilities (N$1 billion) to its three operating banks, thereby significantly mitigating liquidity risk within the group.
GCR believes that timely financial support will be provided by GIPF and CIH, in their role as reference shareholders, or ultimately by the Bank of Namibia (BoN), due to Bank Windhoek’s status as a systemically important financial intuition.
The group’s leading operating subsidiary, Bank Windhoek, is the largest locally owned bank and second largest commercial bank in Namibia. Bank Windhoek contributed 80.1 percent of the group’s consolidated assets at FY17 (FY16: 98.2 percent) and a marginally higher 87 percent (FY16: 86.6 percent) of pre-tax profit, following recent acquisitions. Other non-banking subsidiaries (offering asset management, unit trust management products and services, property development and long and short-term insurance) contributed 2 percent of consolidated assets and 10.6 percent of pre-tax at FY17. While the group’s ratings have largely replicated Bank Windhoek’s ratings, GCR has taken cognisance of added diversification benefits from the recent acquisitions at group level.
Capricorn Group reported a total risk weighted capital adequacy ratio of 16.8 percent at FY17 (FY16: 15.8 percent) and Tier 1 risk based capital ratio of 15.4 percent (FY16: 14.3 percent), which were well above the regulatory minima of 10 percent and 7 percent, respectively, providing a sufficient buffer to absorb credit losses.
The group’s gross non-performing loan (NPL) ratio rose to 2.2 percent at FY17 (FY16: 1.3 percent), mainly due to acquired loan books. Unreserved NPLs relative to regulatory capital remained low, at 10 percent at FY17 (FY16: 5.6 percent).
Pre-tax profit grew by a modest 0.3 percent in FY17 (FY16: 19 percent), on the back of a challenging economic climate. Key profitability indicators remained sound, with the group reporting a return on average equity (ROaE) and return on average assets (ROaA) of 19.5 percent (FY16: 22.9 percent) and 2.4 percent (FY16: 3 percent) in FY17, respectively.
“Strong liquidity and loss-absorption buffers and steady financial metrics, throughout the economic cycle, as well as further enhancement of geographic and earnings diversification benefits would be positively considered. A sharp deterioration in the capital position, liquidity, earnings and asset quality, could see the ratings come under pressure,” GCR added
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