Fitch downgrades GT Bank Ghana to ‘B-‘ on sovereign downgrade but outlook stable
Fitch Ratings has downgraded Guaranty Trust Bank (Ghana) Limited’s Long-Term Issuer Default Rating (IDR) to ‘B-‘ from ‘B’ and Viability Rating (VR) to ‘b-‘ from ‘b’.
The rating action by Fitch follows it downgrade of Ghana’s Long-Term IDRs to ‘B-‘ from ‘B’ on January 14, 2022.
Despite the downgrade, Fitch Ratings asserts that the outlook for the bank’s Long-Term IDR is stable.
Read below Fitch Ratings rating action commentary on GT Bank Ghana
KEY RATING DRIVERS
IDRs AND SSR
GTB Ghana’s Long-Term IDR is now driven by our assessment of the likelihood of extraordinary support from its Nigeria-based parent, Guaranty Trust Bank Limited (GTB Limited; B/Stable), as expressed by its SSR of ‘b-‘. The Long-Term IDR and SSR are at the same level as Ghana’s Country Ceiling of ‘B-‘. The Stable Outlook on GTB Ghana’s Long-Term IDR reflects that on GTB Limited’s Long-Term IDR.
Fitch’s view of support considers GTB Limited’s high propensity to provide support, given GTB Ghana’s importance to the group’s pan-African strategy and its substantial contribution to group net income (13% in 9M21). It also considers the 98% ownership, common branding, a strong performance record and high level of management and operational integration between GTB Ghana and the wider group.
However, GTB Limited’s ability to provide support is conditioned by its standalone creditworthiness, as captured by its Long-Term IDR. We also consider there to be a risk of regulatory restrictions in Nigeria, particularly concerning foreign-currency flows out of the country, which may constrain GTB Limited’s ability to provide timely and sufficient support.
Read: Fixed Income Market: Gov’t raises GHS 1.21bn at increased discount rates
The downgrade of GTB Ghana’s VR follows the downgrade of Ghana’s Long-Term IDRs as the bank does not meet Fitch’s criteria to be rated above the sovereign on a standalone basis. Fitch considers that GTB Ghana is unlikely to remain solvent in a sovereign default scenario, due to the concentration of its operations within Ghana, reliance on sovereign-derived income and particularly high exposure to the sovereign relative to capital, primarily through local-currency government securities (equivalent to an estimated 169% of total equity at end-9M21).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
– A downgrade of the Long-Term IDR would stem from a simultaneous downgrade of the SSR and VR.
– A weakening in GTB Limited’s ability or propensity to provide support would lead to a downgrade of the SSR. Reduced ability to support would most likely be indicated by a downgrade of GTB Limited’s Long-Term IDR or a downward revision of Ghana’s Country Ceiling, which captures Fitch’s view of transfer and convertibility risk within Ghana.
– A downgrade of Ghana’s Long-Term IDRs would result in a downgrade of the VR, given that the bank does not meet Fitch’s criteria to be rated above the sovereign on a standalone basis.
– Stronger than expected loan or balance sheet growth or material asset quality weakening that exerts significant downward pressure on capitalisation and leverage would also lead to a downgrade of the VR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
– An upgrade of the Long-Term IDR would require an upgrade of the SSR or VR.
– An upgrade of the SSR would require both an upgrade of GTB Limited’s Long-Term IDR and an upward revision of Ghana’s Country Ceiling.
– An upgrade of the VR would require a sovereign upgrade, while maintaining reasonable financial metrics.
