June 9, 2017 / 4:13 PM / a year ago

Fitch Rates Development Bank of Namibia 'BBB-'; Outlook Negative

(The following statement was released by the rating agency) LONDON, June 09 (Fitch) Fitch Ratings has assigned Development Bank of Namibia Limited (DBN) a Long-Term Issuer Default Rating (IDR) of 'BBB-' and a National Long-Term Rating of 'AAA(zaf)'. The Outlook is Negative. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, SUPPORT RATING, SUPPORT RATING FLOOR and NATIONAL RATINGS DBN's Long and Short-Term Foreign and Local Currency IDRs, National Ratings, Support Rating (SR) and Support Rating Floor (SRF) are driven by Fitch's assumption of a high probability of support from the Namibian sovereign (BBB-/Negative) for the bank in case of need. The Negative Outlook on the bank's Long-Term IDRs and National Long-Term Rating mirror the Negative Outlook on the sovereign. Fitch's assessment of the high probability of sovereign support for DBN considers (1) the bank's important and long-lasting role in funding the government's economic policy and objectives, (2) its 100% state-ownership (3) significant funding guarantees from the state. In our view, DBN is strategically important to Namibia as the country's primary development bank, incorporated by an act of parliament with a mandate to finance socio-economic development. Its mandate is clearly outlined in the bank's act establishing it as an independent legal entity and incorporated as a public company. The bank provides infrastructure finance to both private and public enterprises in key economic sectors. It also undertakes special tasks if requested by the government, such as financing projects/entities of national importance. DBN's strategy is fully aligned with government policy and public missions, including the National Development Plan. DBN is a 100%-owned entity and comes under the oversight of the Ministry of Finance (MOF). There is a strong record of support for the bank including significant state funding guarantees (around 90% of DBN's debt was guaranteed at end-March 2017) and regular, albeit becoming more limited, equity injections (equity financed around 40% of assets at end-March 2017). The bank was previously fully funded by the government but has since diversified its funding. DBN has good access to capital markets and is entirely wholesale-funded, including loans and facilities from domestic banks, international development banks as well as domestic debt issuance. In our view, the burden of supporting DBN would be moderate for Namibia given the bank's fairly small size relative to both GDP (DBN's assets/GDP of around 5%) and sovereign external reserves. DBN can only be dissolved by parliament and therefore its creditors are unable to put the bank into bankruptcy without it being passed by parliament. We believe that state support for the bank, if required, would be made available before the bank is liquidated under normal bankruptcy proceedings applicable to companies under local commercial laws. DBN's National Ratings reflect Fitch's opinion of the bank's creditworthiness relative to the Namibian sovereign and universe of issuers and issues within the country and South Africa. Namibian issuers are rated on the South African National Rating scale. VIABILITY RATING As is usual for development banks, Fitch does not assign a Viability Rating (VR) to DBN. This is because its business model depends on state support and, in our view, would not be viable on a commercial basis. This is reflected by DBN's dedicated policy role and non-competitive status. RATING SENSITIVITIES IDRS, SR, SRF and NATIONAL RATINGS DBN's IDRs, National Ratings and SRF are directly linked to that of Namibia. Consequently, any rating action relating to the sovereign is likely to affect the bank's IDRs, National Ratings and SRF. A downgrade of Namibia's sovereign rating would trigger a downgrade of DBN's SR, while only a multi-notch upgrade of Namibia's sovereign rating would result in an upgrade of DBN's SR. Other negative sensitivities for the bank's IDRs, National Ratings, SR and SRF include; -Change in DBN's clearly defined policy role and status and therefore diminished strategic importance; -A material reduction in the bank's government's ownership, oversight and control; -A material reduction in government funding guarantees; -Change in Fitch's assessment of DBN's creditworthiness relative to the sovereign or other Namibian and South African issuers, which would lead to a change in the National Ratings. The rating actions are as follows: Long-term Foreign Currency IDR assigned at 'BBB-'; Outlook Negative Short-Term Foreign Currency IDR assigned at 'F3' Long-Term Local Currency IDR assigned at 'BBB-'; Outlook Negative Short-Term Local Currency IDR assigned at 'F3' Support Rating assigned at '2' Support Rating Floor assigned at 'BBB-' National Long-term Rating assigned at 'AAA(zaf)'; Outlook Negative National Short-term Rating assigned at 'F1+(zaf)' Contact: Primary Analyst Mahin Dissanayake Director +44 20 3530 1618 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Andrew Parkinson Director +44 20 3530 1420 Committee Chairperson James Longsdon Managing Director +44 20 3530 1076 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. 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