ICRA Nepal assigns LBB to proposed debenture program of Goodwill Finance; Debentures worth Rs 25 crore being floated

ICRA Nepal has assigned [ICRANP] LBB, (pronounced ICRA NP L double B) to the proposed debenture program of Goodwill Finance Limited (GFCL). Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

Strengths and opportunities

• Adequate track record in banking operations (since 1995) with experienced senior management.
• Improving profitability profile with increased net interest margins (NIMs) during FY2019 also remains a positive for the assigned rating.
• Relatively moderate deposit concentration risk (~14% in top 20 depositors as of jul-2019).
• 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.

Weaknesses and threats

• Deterioration in deposit profile (declining share of current and savings accounts and increased cost of deposits) impacting the company’s competitive position.
• Subdued assets quality and underwriting norms though the reported assets quality has been improving over the years (0+ dpd reached to ~13% in mid-July-2019).
• Aggressive credit growth in the last three fiscals at ~27% compared to ~20% growth in the banking industry, amid evolving internal control, systems and processes at the company with need of better monitoring of the portfolio.
• Scope for improvement in the MIS and high credit concentration (~30% among top 20 borrowers)
• Lack of strong institutional promoters and its modest scalability also remain rating concerns.

 Company Profile

Incorporated in September 1994, Goodwill Finance Limited (GFCL) started its commercial operation from May 1995. The company is now operating as a national level finance company and is promoted by a diversified range of promoters involved in different professions. The share capital of the company is distributed among the promoter and the public in the ratio of 51:49. The company’s equity share is listed in the Nepal Stock Exchange and its corporate office is located at Hattisar, Kathmandu, Nepal. Mr. Saroj Kaji Tuladhar is the Chief Executive Officer of the company.

GFCL has its presence in 13 districts of Nepal through its 16 branches and two ATMs as of mid-July 2019. Its GFCL has a market share of about 9.07% of deposits and 8.59% in terms of the credit portfolio of Nepalese finance companies’ industry as on mid-July 2019. GFCL has reported a net profit of ~NPR 152 million (~133% YoY growth) during 2018-19 over an asset base of NPR 8,718 million as of mid-July 2019. GFCL’s CRAR was 13.77% and gross NPLs were 1.23% as on mid-July 2019. In terms of technology platform, GFCL uses FinMAN as the software across all its branches.

Source: ICRA Nepal