ICRA Nepal reaffirms issuer rating of [ICRANP-IR] BBB+ and rating of [ICRANP] LBBB+ for subordinated debentures of Citizens Bank International

ICRA Nepal has reaffirmed the issuer rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) assigned to Citizens Bank International Limited (CZBIL). The sign of + (plus) or – (minus) appended to the rating symbols indicate their relative position within the rating categories concerned. Issuers with this rating are considered to be of moderate credit quality as they carry a moderate credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and is not specific to any particular debt instrument. ICRA Nepal has also reaffirmed the rating of [ICRANP] LBBB+ for CZBIL’s subordinated debenture programs. Instruments with this rating are considered to have a moderate degree of safety regarding the timely servicing of financial obligations. 

Strengths and opportunities

• Adequate track record (operating since April 2007),
• Increasing presence across the country and the gradual scale-up in operations with improving asset quality indicators (overall delinquencies of ~7% as of mid-July 2019).
• Moderation in portfolio growth in recent periods (~17% credit growth in last three fiscals against ~22% for industry), compared to the above-industry growth recorded earlier.
• Comfortable capitalization with an experienced and stable board/management team could support its future growth plans of attaining a largely similar pace of growth while maintaining comfortable asset quality indicators.
• Balanced portfolio mix with ~51% credit along the retail/SME segment as of mid-July 2019 results in relatively moderate credit concentration (~24% among top 20 borrower groups)
• Gradual improvement in the bank’s net interest margins (NIMs increased to 3.20% in FY2019 as against 2.93% for FY2017) which supported the profitability amid lowering quantity of provision write-backs.

Weaknesses and threats

• Relatively inferior deposit profile with the proportion of low-cost current and savings accounts (CASA) continuing to remain low among its peers (~30% as of mid-July 2019 against ~43% for the industry), despite some recent improvement.
• Bank’s cost of deposits remains much higher compared to industry average (8.3% for FY2019; 6.48% for the industry). This could impact its competitive positioning in the base rate-based lending regime where lending rates are linked to the cost of funds.
• High deposit concentration (~39% among top 20 depositors)
• High exposure to relatively vulnerable sectors (including real estate, loan against shares and hire purchase loans) at ~23% as of mid-July 2019 (~12% for the industry).
• Uncertain operating environment amid liquidity constraints and volatile interest rates that the banks in Nepal are currently facing which can have an impact on their asset quality and profitability.

Bank Profile

Citizens Bank International Limited (CZBIL) started its commercial operations on April 20, 2007 as a Class A commercial bank. The Narayanhiti, Kathmandu-based bank is largely promoted by individuals from different backgrounds along with a few institutions (including Citizen Investment Trust with 4.49% stake). As of mid-July 2019, CZBIL’s promoter:public shareholding stood at ~51:49. The bank’s equity shares are listed on the Nepal Stock Exchange and are traded actively.

CZBIL’s 81 branches and 78 ATMs, as of mid-July 2019, provide it with a diversified presence in the country. The bank’s market share was 2.45%, in terms of its deposit base, and 2.58% of the total advances of the commercial bank industry as of mid-July 2019. CZBIL reported a profit after tax of NPR 1,463 million during FY2019 (audited; ~19% YoY growth) over an asset base of NPR 90,121 million as of mid-July 2019. As of mid-July 2019, CZBIL’s CRAR was 14.37% and gross NPLs were 1.13%. In terms of technology platforms, the bank has implemented Finacle in all its branches. 

*Initially rated in October 2018, yet to be issued; interest rate offered has increased to 10.25% from 9% earlier, rest terms largely remaining the same.