Outlook on the Long-Term Issuer Default Ratings (IDRs) of two Ghanaian banks, Guaranty Trust Bank Ghana and United Bank for Africa Ghana, have been revised downwards from a ‘B’ rating with a stable outlook to a ‘B’ rating with a negative outlook.
The rating of the two Ghanaian banks, Fitch notes, falls in line with the downward rating revision of Ghana’s Sovereign IDR on June 22.
The rating is also driven by the standalone creditworthiness of the two banks as expressed by their viability ratings (VR).
With a revision of the banks’ IDR from stable to negative, this implies that bonds issued by the banks are of a non-investment grade and that there is the likelihood of the banks defaulting on their debt obligations.
On the solvency of the two banks, Fitch asserts that GT Bank and UBA are unlikely to remain solvent in the case of a sovereign default due to the concentration of their operations in Ghana and their high exposure to sovereign loans and over-reliance on sovereign-derived income.
Fitch in its assessment of the IDR of the two banks, further cautions that a sovereign downgrade of Ghana’s IDR may have a negative impact on the banks’ asset quality, earnings and capitalisation.
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RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
– A sovereign downgrade would result in a downgrade of the banks’ Long-Term IDRs and VRs, given that the banks do not meet Fitch’s criteria to be rated above the sovereign.
– Stronger-than-expected loan or balance-sheet growth or material deterioration in asset quality that exerts significant downward pressure on capitalisation and leverage may result in a VR downgrade if not compensated by new equity injections. This could be indicated by a sustained decline in the tangible common equity/tangible assets ratio to around 12%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
– An upgrade would require a sovereign upgrade and an improvement in the operating environment. Fitch does not consider this likely given the Negative Outlook on Ghana’s Long-Term IDRs.
