Bank of Kigali’s credit worthiness and stability has received a strong boost of approval from South Africa-based agency, Global Credit Rating Company, which has affirmed Rwanda’s largest commercial bank with an AA- rating for long-term credit and A1+ for short-term credit lines.
The stock market is expected to warm up to the development with a busy BK counter on the bourse, anticipated today on account of eager investors interpreting the bank’s positive rating as a vote of confidence in its operations.
According to the rating agency, an AA- rating for long-term credit means Bank of Kigali has a very high credit quality outlook and its protection measures are in very strong position.
However, the negative (-) means that adverse changes in business, economic or financial conditions would increase the bank’s investment risk, although not significantly.
On the other hand, an A1+ rating for short-term credit lines means the bank enjoys the highest certainty of timely payment to its creditors.
It also means that the bank’s short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding with credit worthiness close to that of risk-free treasury bills.
What it means
As a listed bank, the positive rating will boost confidence of shareholders as it means their bank is in sound position to earn them more dividends.
The rating is also likely to enhance the bank’s share value on the stock market with a busy counter expected this week.
The new rating also means that the bank can easily access both long- and short-term credit lines, especially from outside the country, without the need for creditors to worry about risks of default or difficulty to get their money back.
In its latest financial stability and monetary policy statement released last month, central bank revealed that Rwanda’s financial sector is “sound and well capitalised with adequate liquidity levels and good quality assets.”
The central bank also noted a positive trend of decreasing non-performing-loans at 5.9 per cent from 6.6 per cent and manageable inflation pressures in the near future and decided to keep, unchanged, its key repo rate at 6.5 per cent to encourage commercial banks to lend more to the private sector.
However, a leading challenge in the country’s financial sector is low deposits due to a weak saving culture and even those who save do so only to withdraw their money in the short-run.
Such dynamics compel banks to seek external alternative sources of credit lines for short but especially long term lending facilities to finance private sector investments.
Favourable credit ratings therefore help commercial banks to have it easy with creditors as they (ratings) boost confidence in the bank’s ability to repay the money, in the long and short run.
A bank with positive short- and long-term credit ratings also enjoys the advantage of borrowing externally at lower interest rates which often translate into lower interest rates on loans for domestic borrowers.
“We are very pleased with the credit rating affirmation by GCR. The affirmation serves to give confidence to our customers and investors both at home and internationally,” said Dr James Gatare, BK’s chief executive.