File picture: Philimon Bulawayo
JOHANNESBURG - Global Credit Ratings (GCR) has upgraded the long term national scale rating of Finbond Group to BBB(ZA) and affirmed its short term national scale rating of A3(ZA), with the outlook accorded as stable.
The group’s COO Carel van Heerden, said,  “GCR’s ratings upgrade is extremely positive for Finbond.  This is particularly so given the ratings downgrade of the five major South African banks and a number of other financial institutions by GCR, Fitch and Moody’s earlier this year.”
GCR said its long-term ratings upgrade of Finbond stemmed from the group’s notably improved earnings diversification following business acquisitions during the group’s 2017 financial year.
It said further rating support was derived from the group’s “very strong capitalisation and low risk liquidity structure, as well as strong competitive position in a niche market of short term unsecured lending.”
The ratings agency also viewed the successful execution of the initial phase of Finbond’s five-year strategic plan, targeting local and offshore businesses with product ranges and customer bases in sync with the group’s existing core competencies as positive.  It said enhanced diversification is expected through the continued unfolding of the group’s medium term strategic expansion, supported by availability of resources and operational/technological innovation.
Furthermore, Finbond Group remained committed to strengthening its South African branch network, acquiring an additional 35 branches during its 2017 financial year.
GCR also noted that Finbond Group’s pre-tax profit rose by 194% on the strength of the growth-intensive USA businesses it acquired and its credit portfolio expanded by 204%.
“The majority of profit was derived from Finbond’s growing microfinance transactional lines income,” it commented and went on to note that although Finbond as a mutual bank is not subject to Basel III requirements, FMB registered a net stable funding ratio of 488% in its 2017 financial year, far exceeding the 100% required from 2018.
Other positives identified by GCR included the fact that Finbond’s capital/assets ratio increased to 37.3% in its 2017 financial year from 27.8% in the previous year. It said this was supported by the injection of share capital and Tier 2 qualifying subordinated shareholder loans.
Commenting on Finbond’s medium term outlook, GCR said “Positive rating action may stem from continued enhancement of earnings and profit potential, while maintenance of strengthened asset quality and capital metrics may be positively considered.”  
GCR said information received from Finbond Group Limited and other reliable third parties to accord the credit ratings included audited financial results at 29 February 2017 and four years of comparative numbers. It also included reserving methodologies and capital management policy, a breakdown of facilities available and related counter-parties, corporate governance and enterprise risk framework, and industry comparative data and regulatory framework.