Fitch Ratings has assigned
A full list of rating actions is detailed below.
Key Rating Drivers
IDRs AND VR
The IDRs of EGH are driven by its standalone creditworthiness, as expressed by its VR of 'b-'. EGH's Long-Term IDR and VR are constrained by
Fitch believes that EGH is unlikely to remain solvent in the event of a sovereign default, due to the concentration of its activities within
EGH is
EGH's risk profile is fairly strong within the context of the Ghanaian operating environment, with corporate loans representing 67% of net loans at end-2020. Single-borrower credit concentration is moderate, with the bank's 20-largest loans representing 50% of gross loans and 137% of CET1 capital at end-3M21. Sovereign exposure through government securities is high (43% of total assets at end-9M21). Sovereign exposure further stems from lending to the public sector and state-owned enterprises (over 20% of lending).
EGH's impaired loans (Stage 3 loans under IFRS 9) ratio (6.4% at end-9M21) is significantly lower than that of the Ghanaian banking-sector average (15.2% at end-2021). EGH's impaired loans ratio has declined significantly from 16.8% at end-2018, as a result of the government-led resolution of
The share of loans restructured as a result of the pandemic declined to around 2% at end-1H21 from 8% at end-2020. Our asset-quality assessment also considers the bank's small loan book (28% of total assets at end-9M21) and large holdings of Ghanaian government securities.
Profitability is strong, as indicated by operating returns on risk-weighted assets averaging 7.2% over the past four years. This is underpinned by
EGH's CET1 capital ratio (16.1% at end-9M21) is fairly high, reflecting a balance sheet that exhibits low leverage. Pre-impairment operating profit, which equalled 19% of average gross loans in 2020, provides a large buffer to absorb higher loan impairment charges if asset quality deteriorates without putting capital under pressure. Fitch expects EGH's CET1 capital ratio to remain high, supported by strong profitability and the bank's intention to maintain high capital buffers. However, capitalisation would come under pressure from a sovereign default, due to EGH's significant exposure to the sovereign through securities and lending.
Reliance on non-deposit funding is low, with customer deposits representing 94% of total funding at end-9M21. A high percentage of current and savings accounts (89% at end-2020) and a healthy share of granular consumer deposits (42% at end-2020) support funding stability and result in low cost of funding relative to peers'. Depositor concentration is moderate by regional standards, with the 20-largest deposits representing 22% of total customer deposits at end-3M21. EGH's low gross loans/customer deposits ratio (41% at end-9M21) is reflective of a highly liquid balance sheet. Our funding and liquidity assessment also considers the benefits of ordinary liquidity support from ETI.
SHAREHOLDER SUPPORT RATING (SSR)
EGH's SSR of 'ccc+' reflects Fitch's view that, although possible, extraordinary support from ETI cannot be relied on.
Fitch believes ETI has a high propensity to support EGH, reflecting the latter's strategically important role in the group as a key contributor to earnings and strong franchise in
However, ETI's ability to provide support, if required, is constrained by the group's own creditworthiness and EGH's fairly large size relative to that of the group (11% of consolidated assets at end-9M21).
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A sovereign downgrade would result in a downgrade of the Long-Term IDR and VR, given that the bank does not meet Fitch's criteria to be rated above the sovereign
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
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the Long-Term IDR and VR would require a sovereign upgrade and an improvement in the operating environment while maintaining reasonable financial metrics
A strengthening in ETI's ability or propensity to provide support could lead to an upgrade of the SSR. Strengthened ability to provide support would most likely be indicated by an upgrade of ETI's Long-Term IDR
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).
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 '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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