Rating actions follow downgrade of the Angolan government rating to Caa1 from B3
London, 10 September 2020 -- Moody's Investors Service, ("Moody's") has
today downgraded the long-term deposit ratings of three Angola-based
banks: Banco Angolano de Investimentos, S.A.
(BAI), Banco de Fomento Angola, S.A. (BFA) and
Banco Economico, S.A. (Banco Economico). The
outlook on the long-term deposit ratings of these three banks is
stable.
At the same time, Moody's has downgraded the Baseline Credit Assessments
(BCA) and Adjusted BCAs of two banks: BAI and BFA. Moody's
has affirmed the BCA and Adjusted BCA of Banco Economico.
These actions conclude the review for downgrade on the Angolan banks'
deposit ratings initiated on 2 April 2020, and follows Moody's downgrade
of the Government of Angola issuer rating to Caa1 with stable outlook
on 8 September 2020. Please see "Moody's downgrades Angola's ratings
to Caa1, outlook changed to stable" (https://www.moodys.com/research/--PR_430831).
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL431843
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
-- DOWNGRADES OF DEPOSIT RATINGS REFLECT WEAKENING BCAs
FOR TWO BANKS, BAI AND BFA, AND LOWER GOVERNMENT SUPPORT CAPACITY
FOR BANCO ECONOMICO
Today's rating actions reflect Moody's expectation of weakening
standalone credit profiles for BAI and BFA amid the coronavirus pandemic
and low oil prices, as well the Angolan government's weakened fiscal
capacity to support Banco Economico in case of need, as indicated
by the downgrade in the sovereign rating.
The downgrades also reflect the large stock of government securities and
loans that links the banks' credit profiles to that of the government.
The rated banks' overall sovereign debt securities and loans exposure
averaged 380% of their tangible capital bases as of December 2019.
In view of the correlation between the sovereign and bank credit risk,
the banks' standalone credit profiles and ratings are inevitably constrained
by the rating of the government.
The sovereign action reflects Moody's assessment that the shocks
resulting from the sharp drop in oil prices and the coronavirus outbreak,
and the related further depreciation of the currency, contribute
to a significantly weakening in Angola's already weak public finances
and fragile external position, despite tangible and continuing reform
effort.
The rating agency expects banks' asset quality to deteriorate due
to Angola's weak economic activity that has been exacerbated by
low oil prices and the coronavirus pandemic. The rating agency
expects Angola's real GDP to contract by 3.3% in 2020
compared to an anticipated 1.2% expansion before the shocks.
A weaker currency combined with the impact of moderate oil prices on business
and consumer confidence, together will weigh on Angola's economic
activity, straining borrowers' repayment capacity.
More positively, the banks' benefit from solid funding and liquidity
profile due to their low amounts of loans, and have resilient profitability
that support their loss absorption capacity. As of end-2019,
Angolan banks' average loan-to-deposit ratio was only
18% and the proportion of loans to total assets was 15%.
The banks' average proportion of liquid asset to banking assets
was 66%, giving banks buffers to withstand any extraordinary
withdrawal of deposits. The Angolan banks also have resilient profitability,
with an average net income to tangible banking assets of 3.2%.
While lending opportunities are limited given Angola's difficult
economic environment, we expect banks to continue to earn adequate
interest income from their foreign-currency linked bonds as the
local currency, the kwanza, depreciates.
Details of how these drivers affect the banks' ratings are given in the
bank specific sections below.
-- STABLE OUTLOOKS REFLECT THE STABLE OULOOK ON THE SOVEREIGN
RATING
The stable outlook on the Angola banks' long-term deposit ratings
reflects the stable outlook on the sovereign rating, which signals
resilience in the Angolan government's credit strength as well as in its
capacity and willingness to support the country's banks in case of need.
The stable outlook on the sovereign rating reflects Moody's assessment
that the credit risks for the government of Angola are balanced over the
next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Any deterioration in the creditworthiness of Angola would exert downward
pressure on the banks' ratings, in view of their large holdings
of sovereign debt securities. In addition, the banks could
be downgraded if operating conditions are expected to worsen than is currently
anticipated, constraining banks business activities while leading
to higher asset risk and provisioning costs.
Conversely, any upwards rating momentum of the banks' ratings will
be dependent on a higher sovereign rating.
For Banco Economico specifically, a successful recapitalization,
reduction of nonperforming loans and generation of profitability on a
sustainable basis may put upward pressure on its BCA.
-- BANK-BY-BANK SUMMARY OF ACTIONS
- Banco Angolano de Investimentos, S.A. (BAI)
Moody's downgraded BAI's long-term local currency deposit
rating to Caa1 from B3, and downgraded its BCA to caa1 from b3.
BAI's long-term local currency deposit rating continues to be aligned
with the rating of the Angolan sovereign. Moody's downgraded
the bank's long-term foreign currency deposit rating to Caa2
from Caa1, in line with the new relevant foreign currency deposit
ceiling. At the same time, the rating agency changed the
outlook on the bank's long-term ratings to stable.
The downgrade of BAI's long-term local currency deposit ratings
to Caa1 from B3 reflects the downgraded BCA to caa1 from b3, which
reflects Moody's expectation that the bank's standalone credit profile
will weaken amid a challenging environment in Angola due to the coronavirus
outbreak, low oil prices and pre-existing economic challenges.
BAI faces material asset risks, as indicated by its high and increasing
nonperforming loans ratio of 39% as of December 2019, up
from 18% as of December 2018. In addition, the bank
has high exposure to the weakening Government of Angola, with BAI's
large holding of government securities representing around 310%
of its tangible common equity (TCE). Nonetheless, the bank's
good reported capital (although Moody's adjusted TCE ratio is modest
at 11%) and high stock of liquid assets (75% liquid assets
to tangible banking assets ratio) partly moderate the aforementioned challenges.
BAI's low proportion of loans to total assets (17%),
low gross loans-to-deposits (30%) and low market
funding reliance (0.23%) are also strengths.
The stable outlook on the bank's long-term ratings mirrors the
stable outlook on the sovereign rating, which signals resilience
in the Angolan government's credit strength as well as its capacity and
willingness to support the country's banks in case of need.
- Banco de Fomento Angola, S.A. (BFA)
Moody's downgraded BFA's long-term local currency deposit
rating to Caa1 from B3, and downgraded its BCA to caa1 from b3.
The BCA is constrained by the sovereign rating. BFA's long-term
local currency deposit rating continues to be aligned with the rating
of the Angolan sovereign. Moody's downgraded the bank's
long-term foreign currency deposit rating to Caa2 from Caa1,
in line with the new relevant foreign currency deposit ceiling.
At the same time, the rating agency changed the outlook to stable.
The downgrade of BFA's long-term local currency deposit rating
reflects the downgraded BCA to caa1 from b3, reflecting (i) Moody's
expectation that the bank's standalone credit profile will weaken,
amid a challenging economic environment in Angola due to the coronavirus
outbreak, low oil prices and pre-existing economic challenges,
as well as (ii) the interlinkages between the sovereign's creditworthiness
and BFA's balance sheet, given BFA's large holding of
government securities, representing around 260% of its TCE
as of December 2019.
BFA's financial profile, as assessed by Moody's is now b3 from b2
previously, but the rating agency constrains the bank's BCA at caa1
(in line with the Angolan sovereign rating) given the bank's significant
direct and indirect exposure to the Angolan sovereign (96% of its
assets are located in Angola).
The b3 financial profile captures BFA's difficult operating environment
and high asset risks (6.7% nonperforming loans ratio as
of December 2019), which are mitigated by robust capital (Moody's
adjusted TCE ratio was 25.8%) that provides good loss absorption
capacity. The high asset risks are also moderated by a low proportion
of loans to total assets ratio (15%), as well as the bank's
low Texas ratio (NPL/ [TCE + loan loss reserves]) at 4.7%.
The bank's financial profile benefits from negligible reliance on
market funds (1.4% market funds-to-tangible
banking assets), a low gross loans to deposits ratio (21.5%)
and high stock of liquid assets as indicated by the bank's 82.8%
liquid assets-to-tangible banking assets ratio.
The stable outlook on the bank's long-term ratings mirrors the
stable outlook on the sovereign rating, which signals resilience
in the Angolan government's credit strength as well as its capacity and
willingness to support the country's banks in case of need.
- Banco Economico, S.A.
Moody's downgraded Banco Economico's long-term local currency
deposit rating to Caa2 from Caa1, and affirmed its BCA at ca.
Moody's downgraded the bank's long-term foreign currency
deposit rating to Caa2 from Caa1. At the same time, the rating
agency changed the outlook on the bank's long-term ratings
to stable.
The downgrade of Banco Economico's long-term local currency deposit
rating reflects the Angolan government's weakening capacity to support
the bank, as indicated by the downgrade of the Government of Angola's
issuer rating to Caa1 from B3. While Moody's assessment of the
probability of government support in case of need remains 'very
high' for Banco Economico, the rating agency's government
support assessment now translates into two notches of uplift from the
bank's BCA compared to three notches previously.
The affirmation of the BCA at ca reflects Banco Economico's elevated
asset risks, as indicated by its very high nonperforming loans ratio
of 77% at year-end 2018 (latest publicly available information).
The bank has no buffer to absorb loan losses, as indicated by the
high 105% Texas ratio (NPLs/[TCE+ loan loss reserves]).
The BCA also captures Banco Economico's funding profile, with
a low gross loans-to-total deposits ratio of 19%
and good liquid resources, with a liquid assets to total assets
ratio was 49.7%.
The stable outlook on the bank's long-term ratings mirrors the
stable outlook on the sovereign rating, which signals resilience
in the Angolan government's credit strength as well as its capacity and
willingness to support the country's banks in case of need.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL431843
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Endorsement
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The person who approved Banco Angolano de Investimentos, S.A.
credit ratings is Antonello Aquino, Associate Managing Director,
Financial Institutions Group, Journalists +44 20 7772 5456,
Client Service +44 20 7772 5454. The person who approved Banco
Economico, S.A. and Banco de Fomento Angola,
S.A. credit ratings is Sean Marion, MD - Financial
Institutions, Financial Institutions Group, Journalists +44
20 7772 5456, Client Service +44 20 7772 5454.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
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
Antonello Aquino
Associate Managing Director
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
