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Fitch Downgrades GTB Ghana To ”B-” On Sovereign Downgrade; Outlook Stable

Segun Agbaje, Managing Director and CEO of Guaranty Trust Bank (GTBank).

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 Outlook on the Long-Term IDR is Stable.

The rating actions follow Fitch’s downgrade of Ghana’s Long-Term IDRs to ‘B-‘ from ‘B’ on 14 January 2022 (see Fitch Downgrades Ghana to ‘B-‘; Outlook Negative).

Fitch has withdrawn GTB Ghana’s Support Rating as it is no longer relevant to the agency’s coverage following the publication of its updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, we have assigned a Shareholder Support Rating (SSR) of ‘b-‘.

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.

VR

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:

, 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.

VR Adjustments

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

The Capitalisation and Leverage Score of ‘b-‘ has been assigned below the ‘bb’ category implied score due to the following adjustment reason: concentrations (negative).

The Funding and Liquidity Score of ‘b’ has been assigned below the ‘bb’ category implied score due to the following adjustment reasons: historical and future metrics; liquidity coverage (negative).

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance.

Public Ratings With Credit Linkage To Other Ratings

GTB Ghana’s Long-Term IDR is driven by GTB Limited’s Long-Term IDR.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

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