International Rating Agency, Fitch, has downgraded Guaranty Trust Bank (Ghana) Limited’s Long-Term Issuer Default Rating (IDR) to ‘B-‘ from ‘B’ with a stable Long-Term IDR Outlook.

The rating released today, Tuesday, January 18, 2022 followed Fitch’s downgrade of Ghana’s Long-Term IDRs to ‘B-‘ from ‘B’ on January 14, 2022.

“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

With regards to support, Fitch stated that it considered 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 considered 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, Fitch indicated.

“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”.
Fitch

Viability Rating

Fitch also downgraded the Bank’s Viability Rating (VR) to ‘b-‘ from ‘b’. The downgrade of GTB Ghana’s VR, according to Fitch, followed 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)”.
Fitch

Explaining the factors that could, individually or collectively, lead to negative rating action/downgrade, Fitch indicated that a downgrade of the Long-Term IDR would stem from a simultaneous downgrade of the SSR and VR.

Fitch further explained that 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 capitalization and leverage would also lead to a downgrade of the VR, Fitch stated.

VR Adjustments

The Earnings and Profitability Score of ‘b-‘ has been assigned below the ‘bb’ category implied score due to negative revenue diversification.

The Capitalization and Leverage Score of ‘b-‘ has been assigned below the ‘bb’ category implied score due to negative concentrations. The Funding and Liquidity Score of ‘b’ has been assigned below the ‘bb’ category implied score due to historical and future metrics and negative liquidity coverage.