Moody’s Investors Service (Moody’s) has downgraded GCB Bank PLC’s global long-term deposit ratings to Caa1 from B3 and lowered its Baseline Credit Assessment (BCA) and Adjusted BCA to caa1 from b3.
The outlook on the bank’s long-term deposit ratings has been changed to stable, from negative. GCB Bank PLC’s rating action followed the weakening of the Ghanaian government’s credit profile, as captured by Moody’s downgrade of the sovereign rating to Caa1 from B3, with a stable outlook, on February 4, 2022.
“Today’s downgrade of GCB’s deposit ratings to Caa1 reflects primarily the sizable holding of sovereign debt securities, at around 3.8 times its shareholders’ equity and 55% of total assets as of September 2021, which links GCB’s creditworthiness to that of the government.
“The action also reflects, to a much lesser degree, the challenges that GCB faces given the fragile operating environment, which leads to asset quality risks as shown by the increase in its nonperforming loans to 19.9% as of September 2021, from 12.7% as of year-end 2020”.
Moody’s
However, Moody’s noted that GCB demonstrated resilience during the pandemic, underpinned by its solid capital buffers with a total capital adequacy ratio of 19.4% as of September 2021, supported by its solid internal capital generation capacity through its profitability, supported by its well-established local retail deposit franchise.
The rating agency also cited high stock of liquid assets, with liquid banking assets at around 71% of tangible banking assets as of September 2021; and deposit-based funding profile as some of the factors that ensured the bank’s resilience.
Basis for the Stable Outlook
The outlook on GCB Bank’s long-term deposit ratings has been changed to stable, from negative outlook, in line with the stable outlook assigned to Ghana’s ratings. The stable outlook balances the ongoing challenges in the operating environment against the bank’s resilient capital, funding and liquidity profile.
Moody’s underscored that the Bank’s ratings could be downgraded if the sovereign rating is downgraded or if the bank’s financial metrics weaken materially, beyond those of similarly rated global peers.
GCB Bank’s ratings could however, be upgraded if the sovereign rating is upgraded and if the bank’s financial metrics, specifically its asset quality, improves from the level seen in September 2021.
For ratings issued on a program, series, category/class of debt or security, Moody’s explained that the announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices.
Additionally, ratings issued on a support provider, provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating.
For provisional ratings, the announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating, Moody’s explained.
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