African-focused rating agency, Global Credit Rating Limited (GCR), affirmed Ecobank Ghana PLC’s long and short-term national scale issuer ratings of A+(GH) and A1(GH), with a stable outlook, at the end of September 2022.
This follows a similar rating in the previous month when the bank’s long and short-term national issuer were deemed A+(GH) and A1(GH) respectively, albeit with a positive outlook. The ratings, GCR says, reflect Ecobank’s strong business profile, stable funding sources and good levels of liquidity, with its improving capitalisation and asset quality risk taken into consideration.
“The bank’s competitive position is strong, with a cost of funds of less than two percent, benefitting from being part of the broader Ecobank Transnational Incorporated’s (ETI) group, which owns 68.93 percent of the bank’s shares,” the South African-based agency noted.
The bank in numbers
The bank’s approximate domestic market share for deposits in 2021 stood at 13.2 percent compared to 13.1 percent the previous year, while the gross advances market share was 11 percent versus 10.4 percent in the earlier year as revenue has remained stable, supported by a healthy internal capital generation of 29 percent.
“Ecobank Ghana is adequately capitalised, with a GCR capital ratio of 20.6 percent at 31st December 2021 (FY20:18.6 percent), while also reporting a CAR above the D-SIB minimum regulatory requirement of 15 percent,” the agency noted.
“However, the bank’s CAR ratio dipped to 16 percent at June 2022, largely due to the single large dividend paid once a year, albeit it only will reflect in the third quarter of 2022. The GCR capital ratio is expected to be around 20 percent by the end of the year,” it added.
The bank’s asset quality has come under pressure due to the COVID-19 pandemic, the NPL ratio improved from 8 percent at the end of June 2021 to 5 percent at end-June 2022.
However, 20 percent of the NPLs have been restructured as certain sectors were hit hard by the pandemic, namely: the construction, real estate, and hospitality sectors. The bank’s gross loan and advances increased from GH¢5.3billion in 2020 to GH¢6.2billion in 2021, with loan loss reserves of GH¢531.3million. “We expect the cost of risk to remain below 10 percent within the short to medium term,” GCR noted.
Simultaneously, the bank’s credit losses have registered at moderate levels of below five percent historically, and we expect them to remain the same in the next 12-18 months. Foreign currency loans accounted for 31.9 percent of gross loans and advances in FY22 (FY20: 34.6 percent), with most of the facilities extended to the manufacturing sector, constituting 19.2 percent of the bank’s loan book.
Outlook
GCR, while highlighting the risk to sovereign debt, warned that an unanticipated event of sovereign default and haircut of local currency government debt could lead to significant capital erosion across the banking sector. Positively, sovereign debt accounts for 12.3 percent of Ecobank Ghana’s total assets.
Funding sources remain relatively stable, supported by the bank’s strong retail footprint. The GCR long-term funding ratio and stable funding ratios were 112 percent (FY21: 108 percent) and 88 percent (FY21: 84 percent) at end-June 2022, respectively. The bank’s liquidity is adequate as the bank has a high liquid asset coverage of wholesale funding of 541.2 percent by June 2022. The GCR liquid assets over deposits stood at 73 percent in June 2022.
“The standalone ratings are effectively capped by the credit profile of the group as reflected in the negative adjustment to the standalone risk score. The outlook is stable due to decent liquidity and adequate capitalisation. Despite the turbulent operating environment, it is expected that the entity will remain resilient even if the asset quality deteriorates,” GCR stated.
“We could revise the ratings upwards if Ecobank Ghana raises and maintains a higher GCR capital ratio – above 23 percent – over the outlook horizon, presuming the group creditworthiness also improves,” it added.
