Rating action follows downgrade of the DRC government rating to Caa1
London, 20 June 2019 -- Moody's Investors Service ("Moody's") has today downgraded the long-
term foreign currency deposit ratings of Rawbank to Caa2 from Caa1,
as well as its long-term local currency deposit ratings to Caa2
from B3. At the same time, Moody's has downgraded the baseline
credit assessment (BCA) and adjusted BCA of the bank to caa2 from b3.
Moody's has changed the outlook on the long-term deposit ratings
to stable from negative.
This action, which follows Moody's downgrade of the Government of
the Democratic Republic of Congo (DRC)'s issuer rating to Caa1 with
a stable outlook from B3 with a negative outlook on 18 June 2019,
reflects the weaker operating environment in the country as well as Rawbank's
declining capitalisation.
The sovereign action reflects Moody's assessment that the capacity of
the country's policymaking institutions to respond to economic or
political shocks is very weak. Please see "Moody's downgrades the
Democratic Republic of the Congo's rating to Caa1, changes outlook
to stable from negative"; http://www.moodys.com/viewresearchdoc.aspx?docid=PR_402528.
A full list of affected ratings is at the bottom of the press release.
RATINGS RATIONALE
-- DOWNGRADE OF BCA REFLECTS WEAKER OPERATING ENVIRONMENT
AND LOWER CAPITALISATION
The downgrade of Rawbank's BCA to caa2 from b3 primarily reflects
the sensitivity of the bank's standalone credit profile to a weaker operating
environment, which is captured by the lowering of the Macro Profile
to "Very Weak-" from "Very Weak".
The change in the Macro Profile for DRC reflects Moody's assessment that
the capacity of the country's policy making institutions and economy
to respond to economic or political shocks is very weak, notwithstanding
significant and largely untapped natural resources wealth. Income
levels are the lowest amongst Moody's rated sovereigns (with GDP
per capital at under $800 in 2018 at purchasing power parity) and
socioeconomic outcomes are poor across the country's large population.
Poor infrastructure significantly impairs growth and the deployment of
support at times of need.
The BCA downgrade also reflects the material decline in Rawbank's
capitalisation, with its tangible common equity to risk weighted
assets ratio declining to 10.5% as of December 2018 from
17.2% as of December 2016. The decline in capitalisation
was primarily driven by a material increase in risk weighted assets,
owing to the bank's rapid credit growth (60% in 2018 and
27% in 2017), combined with DRC's introduction of Basel
II capital computation requirements for additional risk weights to account
for market and operational risk. The capitalisation decline also
partly reflects some foreign currency translation impact. Nonetheless,
the bank's provisioning coverage remains solid (with loan loss reserves
accounting for 127% of problem loans in 2018), which partly
moderates the significant decline in capital.
The bank's caa2 BCA also captures its solid liquidity (43% liquid
banking assets to tangible banking assets at end-2018) and deposit-based
funding structure (customer deposits at 69% of total assets in
2018), moderated by an unseasoned loan book as well as modest profitability
constrained by a high cost base.
-- DOWNGRADE OF LONG-TERM DEPOSIT RATINGS IS DRIVEN
BY THE BANK'S LOWER BCA
The downgrade of Rawbank's long-term local currency deposits
rating to Caa2 from B3 reflects the downgrade in the bank's BCA
to caa2 from b3, combined with the unchanged absence of government
support uplift. The absence of government support uplift is based
on Moody's assessment of a low likelihood of support from the DRC,
reflecting the government's limited capacity to provide support,
combined with the historical limited track record of supporting banks.
The downgrade of Rawbank's long-term foreign currency deposits
rating to Caa2 from Caa1 also reflects the downgrade in the bank's
BCA to caa2 from b3, combined with the unchanged absence of government
support uplift.
-- STABLE OUTLOOK REFLECTS THE STABLE OULOOK ON THE SOVEREIGN
RATING
Moody's decision to change the outlook on Rawbank's long-term deposit
ratings to stable from negative reflects the balanced risks in the operating
environment, as reflected by the stable outlook on the government's
issuer rating.
Rawbank's high liquidity and deposit-based funding together
balance the challenges from DRC's operating environment, as well
as the bank's concentrated loan book, modest capitalisation
and low profitability.
WHAT COULD CHANGE THE RATINGS -- UP
Upwards pressure on the bank's ratings could develop through (a)
an improvement in the bank's operating environment, as would
be captured by an improvement in the Macro Profile, and/or (b) a
material improvement in the bank's capitalisation and asset quality.
WHAT COULD CHANGE THE RATINGS -- DOWN
Downward pressure on Rawbank's ratings could develop through:
(1) a material deterioration in asset quality as the book gradually seasons,
and/or (2) a significant further reduction in capitalisation.
RATING OUTLOOKS
The stable outlook on Rawbank's long-term deposit ratings
reflects Moody's view that, at the current rating level,
Rawbank's high liquidity and deposit-based funding together
balance the challenges from DRC's operating environment, as well
as the bank's concentrated loan book, modest capitalisation
and low profitability.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The local market analyst for these ratings is Mik Kabeya, +971
(423) 795-90.
LIST OF AFFECTED RATINGS
Issuer: Rawbank
..Downgrades:
.... Adjusted Baseline Credit Assessment,
Downgraded to caa2 from b3
.... Baseline Credit Assessment, Downgraded
to caa2 from b3
.... Long-term Counterparty Risk Assessment,
Downgraded to Caa1(cr) from B3(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to Caa1 from B3
....Long-term Bank Deposits (Local
Currency), Downgraded to Caa2 from B3, Outlook Changed To
Stable From Negative
....Long-term Bank Deposits (Foreign
Currency), Downgraded to Caa2 from Caa1, Outlook Changed To
Stable From Negative
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Short-term Counterparty Risk Rating,
Affirmed NP
.... Short-term Bank Deposits,
Affirmed NP
..Outlook Action:
....Outlook Changed To Stable From Negative
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Peter Mushangwe
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
