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Rating Action:

Moody's downgrades the long-term ratings of three Angolan banks with stable outlook; concludes the review

10 Sep 2020

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

No Related Data.
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