GCR affirms Capricorn Investment Group and Bank Windhoek ratings

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Johannesburg

Global Credit Ratings (GCR) has affirmed the national scale ratings assigned to Capricorn Investment Group Limited as well as Bank Windhoek Limited of AA(NA) and A1+(NA) in the long term and short term respectively, with the outlook accorded as stable.

According to GCR, the ratings of the Capricorn Group reflect its strong market position in the local banking industry and significant presence in the insurance and asset management markets, as well as its stable capitalisation and earnings generation, adequate risk management framework and conservative risk appetite.

“While GCR expects the Capricorn Group to remain resilient, the prevailing domestic macroeconomic challenges (including significantly weaker forecasts for real gross domestic product growth) and an uncertain global economic outlook, increase downside risks for Capricorn Group (and the financial sector in general) asset quality metrics and earnings generation,” reads a statement from GCR.

Capricorn’s leading operating subsidiary, Bank Windhoek Limited, is the largest locally-owned bank and second largest commercial bank in the country. Bank Windhoek contributed 98.2 percent of the group’s consolidated assets at the end of the 2016 financial year and 86.6 percent of pre-tax profits. Other non-banking subsidiaries (offering insurance brokerage, property development, asset management and unit trust management products and services) contributed the balance. As such, the group’s ratings largely replicate the banking subsidiary’s ratings.

The ratings also reflected the high probability of support from Namibian authorities, if required. “Based on Bank Windhoek’s high systemic importance, stemming from its substantial market shares (about 30.6 percent and 29.4 percent by assets and deposits respectively at 30 June 2016), the group maintained a strong capital position on a consolidated basis as measured by the Bank of Namibia’s capital adequacy requirements for banking groups.

Capricorn Group reported a total risk weighted capital adequacy ratio of 15.8 percent at the end of the 2016 financial year (FYE16) and Tier 1 risk based capital ratio of 14.3 percent, which were well above the regulatory minimum of 10 percent and 7 percent respectively, providing a sufficient buffer to absorb credit losses,” reads the ratings statement.

Capricorn Group’s overall asset quality remains sound despite a 36.2 percent increase in non-performing loans (NPL) at FYE16 (FYE15: 87.2 percent). The increase was mainly due to the downgrade of a large corporate exposure to loss category. Accordingly, the gross NPL ratio rose to 1.3 percent at FYE16 from 1.1 percent at FYE15. Specific provisions covered 33.3 percent of NPLs at FYE16 (FYE15: 38.9 percent), with the remaining exposure covered by collateral. The group’s unreserved NPLs relative to regulatory capital ratio remained low (5.6 percent) at FYE16. Looking ahead, the Group will remain cautious and vigilant in growing its quality loan portfolio and continue to focus on sound credit management practices to contain NPL formation.

“Additional franchise entrenchment, strong liquidity and loss-absorption buffers and steady operating metrics throughout the economic cycle will further strengthen the group’s financial profile. However, the group’s significant market position, strong credit profile and high probability of state support limit the likelihood of rating changes over the medium-term. A sharp deterioration in the capital position, liquidity, earnings and asset quality, could see the ratings come under pressure,” the statement continued.

Established in 1996, Capricorn Group is an investment holding company and was listed on the Namibia Stock Exchange in June 2013. Through its subsidiaries and associates, Capricorn Group provides a diverse range of services, including banking, insurance brokerage, property development, asset management and unit trust management.

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