GCR has retained Agricultural Development Bank of Zimbabwe’s (“Agribank”) long term national scale rating of BBB (triple B). The rating remains on Rating Watch. Agribank was established in 1999 following the attainment of a commercial banking license by the then Agricultural Finance Corporation (“AFC”). The Government of Zimbabwe wholly owns the bank through an equal shareholding split between the agriculture and finance ministries. Agribank’s established track record and important role in facilitating government’s efforts to stimulate Zimbabwe’s agriculture sector benefited the rating. Government remains the financier’s sole shareholder. However, on the back of a dollarised economy, government plans to dispose part of its shareholding to an at yet unknown strategic partner in a bid to raise additional capital to fund operations.
Capital & reserves grew by 145% to US$14.9m as at FYE10 (FYE09: US$6.7m), supported by tier I capital injections. Government injected US$17m during F10, in a bid to strengthen the bank’s underwriting capacity and align capital levels to the new minimum regulatory capital requirement of US$12.5m post dollarisation. However, with the bulk of the capital (US$12m) received towards the end of F10, the support was not immediately felt, with the bank recording an accelerated loss of US$8m (including retrenchment costs totalling US$1m) in F10. Notwithstanding this, the bank displayed a capital adequacy ratio of 28% as at FYE10, which was well above the regulatory minimum of 10%. The results for 1HF11 reflected a decline in losses to US$0.4m on the back of increased funding (including an additional capital injection of US$1.25m) and the resultant increase in earning assets. Following significant loan growth, arrears amounted to 3.8% of gross loans as at FYE10. The net non-performing loan (“NPL”) and net NPLs/capital ratios increased to 1.9% and 3.8% respectively as at FYE10. Liquidity risk remains a major challenge for Zimbabwean banks due to low market liquidity, the limited capacity of the central bank to act as a lender of last resort and the lack of a functional interbank market. Notwithstanding this, the bank’s liquidity ratio climbed to 36% (FYE09: 28%) as at FYE10, which was well above the prudential minimum of 20%. Agribank’s financial flexibility stems mainly from long-established government support. However, post dollarisation, Agribank has also significantly relied on customer deposits, a major shift from prior years, when funding was predominantly sourced from government grants for specific agricultural related on-lending to rural small-scale farmers and concessional agriculture facilities. Furthermore, the bank secured a US$30m line of credit in March 2011 from the Industrial Development Corporation of South Africa (“IDC”) for on-lending.
Jennifer Mwerenga https://globalratings.net/uploads/files/October_2011.pdf
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