Fitch Downgrades Ghana Subsidiary Of GTCO To ‘B-’

Fitch Ratings has downgraded the Ghana subsidiary of Guaranty Trust Holding Company (GTCO) to ‘b-’ due to its level of revenue diversification, risk profile and business model,  as it affirmed its Long-Term Issuer Default Rating (IDR) at ‘B-’ with a stable outlook.

Guaranty Trust Bank (Ghana) Limited, which is 13 per cent of GTCO’s business is 98 per cent owned by the holding entity. According to Fitch, an international rating agency, GTB Ghana is unlikely to remain solvent in a sovereign default scenario due to the concentration of its operations within Ghana.

It said the bank has a high reliance on sovereign-derived income, and high exposure to the Ghanaian government which is 36 per cent of its total assets at end of the first quarter of 2022 relative to capital.

“GTB Ghana therefore does not meet Fitch’s criteria to be rated above the sovereign on a standalone basis.

“Extremely strong loan growth in 2020 and 2021, 85 and 56 per cents respectively, was largely driven by increased exposure to existing customers, which has heightened single-borrower credit concentration.

“However, underwriting standards remained reasonable, with new lending largely being collateralised by sovereign fixed income securities. Strong loan growth will continue in 2022 and 2023 and may lead to loan book seasoning risks.

“Earnings are highly reliant on interest income from government securities, 49 per cent of total interest income in 2021. GTB Ghana’s operations are concentrated in Ghana and holdings of Ghanaian government securities are high relative to capital, exposing GTB Ghana to a sovereign default.

“GTB Ghana’s Long-Term IDR is driven by potential support from its Nigeria-based parent Guaranty Trust Bank Limited (GTB Limited; B/Stable), as expressed by its Shareholder Support Rating (SSR) of ‘b-’.

“The Stable Outlook reflects that on GTB Limited’s Long-Term IDR. GTB Ghana’s Long-Term IDR is at the same level as Ghana’s Country Ceiling of ‘B-’, which captures Fitch’s view of transfer and convertibility risk within Ghana,” Fitch pointed out.

The Fitch report furthered that a downgrade of the Long-Term IDR would require a downgrade of the SSR of ‘b-’ and VR of ‘b-’.

“A weakening in GTB’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’s Long-Term IDR or a downward revision of Ghana’s Country Ceiling