Announcements Financial Institutions Rating Alerts

Atlas Mara Zambia’s long-term national scale rating lowered to CCC-(ZM) from CCC(ZM) and subsequently withdrawn.

Rating Action

Johannesburg, 12th May 2020 – GCR Ratings (‘GCR’) has downgraded Atlas Mara Zambia’s national scale long term issuer rating to CCC-(ZM) from CCC(ZM), while the national scale short-term issuer rating remains C(ZM). The outlook has been revised to Negative from Rating Watch Evolving. Subsequent to the above rating action, all ratings have been withdrawn for commercial reasons. Accordingly, GCR will no longer provide analytical coverage for the bank.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Atlas Mara Zambia Long Term issuer National CCC-(ZM)/WD Negative
Short Term issuer National C(ZM)/WD n.a.

Rating Rationale

GCR has downgraded the national scale ratings of Atlas Mara Zambia and subsequently withdrawn the ratings. The downgrade follows continued strain on capitalisation and asset quality and uncertainty regarding an expected ownership and structural change at the group level. Furthermore, the negative outlook reflective of GCR’s view of continued financial stress for the bank especially in light of the COVID-19 global pandemic.

At the time of withdrawal, the financial profile of the bank was broadly negative, emanating mainly from a weakening capital position and deteriorating asset quality which is balanced by adequate funding and liquidity and expected continued support from the group. Atlas Mara Zambia’s GCR Total Capital to Risk Weighted Assets ratio deteriorated from c.9% at FY18 to c.5% at FY19, which is a further drop from FY17’s 17%. The erosion of capital has been a result of continued losses which deteriorated from c.KW29m in 2018 to c.KW131m for 2019. Despite growth in the earnings over the same period, total expenses have outpaced these gains. Continuation of this trend will place the bank at risk of breaching the prudential capital limits set by the regulator. At the same time, reported non-performing loans also deteriorated from 14.3% (FY18) to 23.2% at FY19. Though reserve coverage of the NPLs was considered adequate at c.75%, GCR expects further deterioration of the loan book induced by exogenous factors like COVID19, particularly its impact on tourism, industry and broadly the Zambian economy. The above developments have been considered in the light of uncertainty regarding expected ownership and structural changes at the shareholder level, ABC Holding Limited, whose mooted equity swap transaction with Equity Group Holdings Plc cannot be verified.

The abovementioned factors are counterbalanced by expected continued support from the shareholder, ABC Holdings, and an adequate funding and liquidity profile. Despite, some weaknesses in the funding structure such as relative high cost of funding and reliance on relatively less stable funding sources, GCR considers the liquidity at the date of review sufficient.

Outlook Statement

At the time of withdrawal, the bank’s outlook has been accorded as negative being reflective of GCR’s expectation of continued stress for the bank emanating from the COVID19 induced pressures on the Zambian economy which is likely to further deteriorate the bank’s financial profile, placing it at risk of breaching regulatory capital minimums.

Analytical Contacts

Primary analyst Kudzanai Samanga Financial Institutions Analyst
Johannesburg, ZA kudzanais@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA Matthewp@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, May 2020
GCR Financial Institutions Sector Risk Score, December 2019
GCR affirms Atlas Mara Zambia’s rating of CCC(ZM)/C(ZM); maintains Rating Watch Evolving, November 2019

Ratings History

Atlas Mara Zambia

Rating class Review Rating scale Rating class Outlook/Watch Date
Long Term issuer Initial National BB(ZM) Evolving February 2018
Last National CCC(ZM) Rating Watch November 2019
Short Term issuer Initial National B(ZM) n/a February 2018
Last National C (ZM) n/a November 2019

RISK SCORE SUMMARY

Risk score
Operating environment 3.75
Country risk score 1.75
Sector risk score 2.00
Business profile (1.50)
Competitive position (1.50)
Management and governance 0.00
Financial profile (6.50)
Capital and Leverage (5.00)
Risk (1.50)
Funding structure and Liquidity 0.00
Comparative profile 3.00
Group support 3.00
Government support 0.00
Peer analysis 0.00
Total Score (1.25)

Glossary

Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
Capital The sum of money that is invested to generate proceeds.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Market An assessment of the property value, with the value being compared to similar properties in the area.
National Scale Rating National scale ratings measure creditworthiness relative to issuers and issues within one country.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Performing An obligation that performs according to its contractual obligations.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Current; ordinarily less than one year.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Atlas Mara Zambia. The ratings above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Atlas Mara Zambia participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Atlas Mara Zambia and other reliable third parties to accord the credit rating included:

  • Audited financial results of Atlas Mara Zambia as at 31 December 2019;
  • A breakdown of facilities available and related counterparties; and
  • Industry comparative data.


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.