ICRA Nepal reaffirms issuer rating of [ICRANP-IR] A- to Global IME Bank

ICRA Nepal has reaffirmed the rating of [ICRANP-IR] A- (pronounced ICRA NP Issuer Rating A minus) to Global IME Bank Limited (GBIME). Instruments with [ICRANP-IR] A- rating are considered as adequate credit-quality rating assigned by ICRA Nepal. The rated entity carries average credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument.

The rating has been removed from “rating watch with negative implications”. The removal of rating watch with negative implications is because of GBIME’s ability to manage the asset quality despite general stress in Nepalese economy, especially during FY16 arising from Apr-15 earthquake and the subsequent elongated economic blockade. In ICRA Nepal’s assessment, the bank’s operational and financial profile is expected to remain consistent with the rating level going forward.

The rating reaffirmation factors in GBIME’s healthy asset base relative to its moderate track record (since 2007), aided to an extent by series of mergers and acquisitions, leading to good market positioning with 4.5% share in industry credit and deposits as of mid-Jan-181. The bank’s calibrated growth strategy so far (on a standalone basis) while ensuring adequate controls and similar plans for near future also remains a positive from rating perspective.

The rating also derives comfort from gradually improving assets quality as well as increasing share of retail/SME loans in bank’s credit portfolio leading to slight moderation in credit concentration risks. The rating action also takes into consideration bank’s adequate earnings profile over increased assets base, notwithstanding some moderation in H1FY18 due to rising costs of deposits. Incremental growth prospects for the bank remain supported by bank’s diversified franchise, comfortable CCD ratio of 75% as on mid-Apr-18 and experienced management team.

The rating is however constrained by bank’s capitalisation profile (CRAR of 11.72% as of Apr-18) which is lower than peer rated banks and moderation in its deposits profile leading to spike in cost of funds that could pressurize NIMs (Net Interest Margins) going forward. Bank’s high deposit concentration and the quality of credit portfolio emanating from acquired B Class financial institutions in FY17 also remains areas of concern.

Further, the sharp spike in lending rates in last 6-12 months could impair the repayment capability of borrowers and hence could impact asset quality indicators for the banking sector as a whole over the medium term. Bank’s ability to improve the capitalisation, reduce its cost of funds and hence improve the competitive positioning while attaining sustainable portfolio growth and healthy asset quality/profitability indicators would remain key rating drivers.