ICRA Nepal assigns ratings to Goodwill Finance Limited and its subordinate debenture program

ICRA Nepal has assigned the issuer rating of [ICRANP-IR] BB assigned to Goodwill Finance Limited (GFCL). Issuers with this rating are considered to have moderate risk of default regarding timely servicing of financial obligation.

ICRA Nepal has also reaffirmed the rating of [ICRANP] LBB for GFCL’s subordinated debenture programme worth NPR 250 Million. Instruments with this Rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

The rating actions factors in the company’s adequate track record in banking operations (since 1995) with experienced senior management. Improving profitability profile with increased NIMs during FY2019 also remains positive for the assigned ratings. The ratings also factor in relatively moderate deposit concentration risk (~14% in top 20 depositors as of jul-2019). GFCL’s healthy capitalization (CRAR of 13.77% as of mid-Jul-2019) and adequate network along with its plans to expand over new geographies are expected to provide adequate growth opportunities, going forward.

Nonetheless, the ratings are constrained by the deterioration in deposit profile (declining share of current and savings accounts and increased cost of deposits) impacting the company’s competitive position. The assigned ratings also factor subdued assets quality and underwriting norms though reported assets quality improving over the years (0+ dpd reached to ~13% in mid-July-2019). ICRA Nepal also takes note of the aggressive credit growth in the last three fiscals at ~27% compared to ~20% growth in the banking industry amid evolving internal control, system and processes at the company with need of better monitoring of the portfolio.

Additionally, scope for improvement in MIS, high credit concentration (~30% among top 20 borrowers) also remains a rating concern. Lack of strong institutional promoters and its modest scalability also remain rating concerns. Going forward, GFCL’s ability to maintain assets quality and attaining requisite growth with adequately diversified portfolio towards various sectors/geographies would remain key challenges.

Source: ICRA Ratings Nepal