Johannesburg, 07 June 2017 — Global Credit Ratings (“GCR”) has assigned national scale ratings to GetBucks Financial Services Limited of BB(ZW) and B(ZW) in the long term and short term respectively; with the outlook accorded as Positive. The ratings are valid until May 2018.
SUMMARY RATINGS RATIONALE
The initial ratings assigned to GetBucks Financial Services Limited (“GetBucks Zimbabwe”, “the company”) reflect its nascent deposit-taking microfinance business, limited trading history, and very strong capitalisation, within the context of a highly challenging operating environment.
GetBucks Zimbabwe is majority owned (50.3%) by GetBucks Limited, a holding company domiciled in Mauritius, which is 100% owned by MyBucks S.A. The remaining shares in GetBucks Zimbabwe are effectively held by Brainworks Capital Management (Private) Limited (31.1%), DBF Capital Partners Limited (8.4%) and various local pension funds (with a combined shareholding of 10.2%).
GetBucks Zimbabwe provides unsecured loan products (including salary advances, term loans (1-18 months) and educational loans) to low income, formally employed borrowers. The company recently commenced deposit taking operations. GetBucks Zimbabwe services over 20,000 clients through 14 branches in Zimbabwe’s major cities and towns, and has a staff complement of 66.
Established in 2012, the company listed on the Zimbabwe Stock Exchange in 2016. Yet, a significant portion of the equity offered was taken up by the underwriters, highlighting the current economic challenges and lack of liquidity in Zimbabwe. The company is registered and supervised by the Reserve Bank of Zimbabwe under its Microfinance Act. GetBucks Zimbabwe mainly competes with 181 licensed credit-only microfinance institutions (“MFIs”) and four deposit-taking MFIs, as well as 13 commercial banks.
GCR views the company’s capital metrics as very strong. GetBucks Zimbabwe had a total risk-weighted capital adequacy ratio (“RWCAR”) of 51.1% at FY16, and a Tier 1 RWCAR of 47.6% (well above the 12% regulatory minimum), which provides a solid buffer against capital attrition given the risk profile of the company. GetBucks Zimbabwe’s core capital was USD7.8m at FY16, against a statutory minimum requirement of USD5m.
Unsecured loans to government employees through payroll deductions account for around 70% of total loans, which exposes the company to potential adverse developments in the regulatory or legal framework that may hamper the payroll deduction process. GetBucks Zimbabwe’s net advances grew at a compound annual growth rate of 134.4% since 2013. Approximately 52% of loans, with an average size of USD500, were taken out for educational purposes (mainly to pay school fees), whilst the balance were for consumption, emergencies, and home improvement, amongst others. The company’s impaired loans ratio and past due loans ratio were 5.8% and 1.8% at FY16 (FY15: 2.4% and 2.1%) respectively. Loan write-offs were 6.3% of average gross advances in FY16.
Equity of USD10.4m constituted the majority of funding (54.0%) at FY16, supplemented by customer deposits (3.4%) and borrowings (42.6%), which comprised promissory notes (63.5%) and term loans (36.5%). Liquid assets accounted for a healthy 16.4% of total assets at FY16.
In FY16, the company posted a profit after tax of USD3.0m (FY15: USD4.6m) mainly driven by very high margins. The company, however, has experienced volatility in its earnings, costs and credit losses over the past four years, which is indicative of its nascent operations.
A demonstrated track record of stable/improving profitability and asset quality indicators, while maintaining very strong capitalisation, increasing funding diversification and operational scale, and/or strengthening shareholder support assumptions, could positively impact the company’s ratings. The imposition of restrictions on the deduction (at source) of loans/payments from the wages of public-sector employees, leading to a sharp rise in bad debts and impairment costs, could exert downward pressure on the company’s ratings. In addition, significantly weaker capitalisation, or any material weakening of asset quality and profitability metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (May 2017)|
|Long-term: BB(ZW); Short-term: B(ZW)|
|Sector Head: Financial Institution Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Global Criteria for Rating Finance and Leasing Companies, updated March 2017
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.
The credit ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
The credit ratings above were disclosed to and contested by GetBucks Financial Services Limited and were amended following the provision of further material information by the entity.
GetBucks Financial Services 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 information used to analyse GetBucks Financial Services Limited and accord the credit ratings included: Audited financial results as at 30 June 2016 (and three years of comparative numbers);
- Unaudited financial results as at 31 December 2016;
- Detailed loan book data;
- Risk management guidelines; and
- Other relevant rating information.
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.|
|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.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Equivalent||An asset that is easily and quickly convertible to cash such that holding it is equivalent to holding cash.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Customer Deposit||Cash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|Initial Public Offering||The first offering of shares to the public by a privately or state owned company. IPOs are used by companies to raise new funds, or to achieve a listing on a stock exchange.|
|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.|
|Past Due||Any note or other time instrument of indebtedness that has not been paid on the due date.|
|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.|
|Tier 1 Capital||Primary capital consists of issued ordinary share capital, hybrid debt capital, perpetual preference share capital, retained earnings and reserves. This amount is then reduced by the portion of capital that is allocated to trading activities and other regulatory deductions.|
GCR accords an initial rating of BB(ZW) to GetBucks Financial Services Limited; Outlook Positive.