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GCR Affirms Finbond Group Limited’s Investment Grade Credit Rating of BBB-_(ZA); Outlook Stable
FINBOND GROUP LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER: 2001/015761/06) SHARE CODE: FGL ISIN: ZAE00013895 (“FINBOND” OR “THE COMPANY”)
GCR AFFIRMS FINBOND GROUP LIMITED’S INVESTMENT GRADE CREDIT RATING OF BBB-_(ZA);
OUTLOOK STABLE
Shareholders are advised that Global Credit Ratings (“GCR”) has affirmed the Investment Grade
national scale credit rating assigned to Finbond Group Limited of BBB-(ZA) and A3(ZA) in the long
term and short term respectively; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Finbond Group Limited
(“Finbond”, “the group”) based on the following key criteria:
- Finbond, through its underlying businesses, the most significant being Finbond Mutual Bank
(“FMB”) offers short- and medium-term unsecured loans, insurance and savings products,
transactional banking, and mortgage finance products to individuals in South Africa. Post
FYE16, Finbond raised a total of R1.08bn from shareholders and expanded its operations to
the United States of America and Canada through the acquisition of 178 short-term lending
branches operating in the Alternative Financial Services market.
- The ratings of Finbond, an operating holding company (through which the group’s credit-
linked insurance products are provided), reflect its growing local mutual banking and
microfinance businesses, and international expansion. Evolving regulatory landscapes,
characterised by amendments to existing regulations and the introduction of new
requirements, as well as weak economic conditions (in South Africa especially) were also
considered.
- Robust credit/risk management, stable asset quality/performance and comfortable
capital/liquidity levels support the ratings, which exclude the prospect of state support, given
its low likelihood. The rating outlooks consider the group’s development and growth phase,
within the context of challenging and uncertain economic and regulatory environments.
- The group maintains adequate capitalisation relative to its level of credit risk. Finbond’s
capital/assets ratio was 27.1% (FYE15: 25.6%), and FMB’s capital adequacy ratio was 35.8%
(FYE15: 35.1%) at FYE16.
- Fixed term deposits from customers, Finbond’s main source of funding, decreased by 1.5%
(compared to loan growth of 17.2% in F16) as management sought to reduce the cost of
surplus funds. As a result, the loan/deposit ratio increased to 35.9% (FYE15: 31.0%) at FYE16,
and liquid assets as a percentage of total assets was a lower 25.7% (FYE15: 42.3%) at FYE16.
- Finbond’s conservative lending practices and strict upfront credit scoring, as well as write-offs
of R94.4m (F15: R78.2m), reduced the gross impairment ratio to 12.4% (FYE15: 19.4%) at
FYE16. Provision coverage of arrears increased to 49.1% (FYE15: 43.7%). In F16, collection and
rejection rates remained high. While most metrics highlighted asset quality improvement,
operating environment challenges make a reversal of this trend in F17 a possibility in GCR’s
opinion.
- In F16, operating income rose by 24.6% to R468.3m and net income by 12.6% to R57.3m. The
majority of profit was derived from Finbond’s small personal loans, microfinance initiation and
service fees, and insurance commission revenue. Impairments increased by 18.6% (in line with
loan growth), while the cost-to-income ratio remained unchanged at 64.5% in F16.
- A sustained improvement in business profile (particularly scale and earnings diversification),
as well as stable asset quality and capital metrics would be positively considered. While a
significant deterioration in Finbond’s asset quality, earnings, capital, funding and/or liquidity
profiles, could lead to negative rating action.
Pretoria 31 October 2016
Sponsor Grindrod Bank Limited
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