Johannesburg, 28 April 2016 — Global Credit Ratings has today assigned national scale ratings to CBZ Bank Limited of A(ZW) and A1-(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until April 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to CBZ Bank Limited (“CBZ Bank”, “the bank”) based on the following key criteria:
The ratings of CBZ Bank reflect its sound capitalisation, healthy profitability and improved asset quality indicators at FYE15, as well as its leading market position in terms of total deposits, loans and assets. However, the bank’s balances with other banks and cash component of short term assets is very low compared to other leading banks in the market, and could constrain its financial flexibility (in light of the transitory nature of deposits and the high demand for hard currency by depositors).
CBZ Bank’s core capital grew by 19.8% to USD133.2m at FYE15, largely through organic earnings growth, complying with the minimum regulatory capital requirement. The bank’s capital base is considered appropriate relative to its current size and level of business risk as reflected by its Tier I and capital adequacy ratios of 11.8% and 16.3% at FYE15 respectively.
Asset quality metrics improved in F15, following significant write-offs and the sale of non-performing loans (“NPLs”) to the value of USD23.5m to the Zimbabwe Asset Management Company, a special purpose vehicle formed to buy banks’ secured NPLs in exchange for long term treasury bonds. In GCR’s view, CBZ Bank’s asset quality remains vulnerable, due to significant exposures to the country’s agriculture and manufacturing sectors, and a large stock of special mention (past due but not impaired) loans (31.3% of gross advances at FYE15). At FYE15, NPLs (overdue by 90 days or more) represented 7.7% (FYE14: 8.2%) of gross loans and advances, and were 49.0% (FYE14: 42.9%) covered by specific provisions.
In F15, CBZ Bank’s operating income grew 19.6% to USD139.7m and net income increased 48.0% to USD26.4m. The F15 financial performance was driven by improved margins (following a reduction in the bank’s cost of funding), higher non-interest income (driven by the introduction of new products and delivery channels) and better operational efficiencies (as reflected by an improvement in the cost to income ratio from 68.3% in F14 to 61.7% in F15).
In addition to high depositor concentrations, the bank’s negative contractual asset/liability mismatches at FYE15, given the significant amount of short term borrowings (in particular less than one month deposits), heightens liquidity risk. However, the bank’s prudential liquidity ratio (on average) remained above the minimum regulatory requirement of 30% throughout F15.
GCR sees limited scope for an upward movement of the bank’s ratings, considering the difficult operating environment. However, sustained improvements in the bank’s credit profile, earnings power and capitalisation, resulting in enhanced resilience to a volatile operating environment, could positively impact the bank’s ratings. A weakening of the bank’s asset quality metrics, lower earnings and capital strain, or a subsequent deterioration in the bank’s liquidity and solvency indicators, would exert downward pressure on the bank’s ratings.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2000)
Long term: A-(ZW); Short term: A2(ZW)
Last rating (Nov/2015)
Long term: A(ZW); Short term: A1(ZW)
Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
CBZ Bank rating reports (2000-15)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
CBZ Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to CBZ Bank Limited with no contestation of the rating.
The information received from CBZ Bank Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2015 (and four years of comparative numbers)
- Budgeted financial statements for 2016
- Latest internal and/or external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative data
The rating above was solicited by, or on behalf of, CBZ Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Margin||The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Regulatory Capital||The total of primary, secondary and tertiary capital.|
|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.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Special Purpose Vehicle||An entity that is created to fulfil specific objectives. An SPV is normally bankruptcy/insolvency remote and created to isolate financial risks.|
For a detailed glossary of terms utilised in this announcement please click here
GCR accords an A(ZW) rating to CBZ Bank Limited; Outlook Stable