Moody's retains PTA Bank rating on weak capital base

International credit rating agency Moody’s has upheld the Eastern and Southern African Trade and Development Bank (TDB) credit rating of Baa3, citing the firm’s “weak capitalisation levels and liquidity”.

A ratings update report said the pan-African lender formerly known as PTA Bank has a stable outlook.

“The affirmation of the Baa3 rating reflects the bank's relatively weak but stable capital adequacy, driven by higher leverage than for many other Multilateral Development Banks (MDBs),” said Moody’s,

The agency said weak development asset credit quality and significant concentration risk, is partly mitigated by sustained profits accumulation that supports the bank's capital buffers.

“The rating also captures adequate liquidity underpinned by the short-term nature of the portfolio and diversified funding sources; and weak shareholders' credit quality notwithstanding willingness to support TDB enhanced by a mid-term credit risk mitigation instrument,” said Moody’s.

Moody’s warned that the bank's weak development asset quality at "b", according to its assessment, weighs on the lender’s capital adequacy.

“It reflects weak credit quality of its assets and high concentration risk despite mitigating measures taken by TDB,” said Moody’s. “A significant portion of assets is of very low credit quality (typically equivalent to a low B or Caa rating).

Moreover, concentration risk is high with the top 10 obligors representing more than 70 percent on a gross basis as of end-2018.”

The stable outlook, Moody's said, is backed by its expectation that the bank would maintain its capital buffer, asset performance and liquidity.

“The stable outlook balances Moody's view that the bank will pursue its growth strategy while preserving its capital buffer, asset performance and adequate liquidity, while risks to capital adequacy and liquidity related to the highly challenging operating environment and concentrated exposure will remain,” it said.