Announcements

GCR accords IEMAS Financial Services (Co-operative) Limited’s initial rating of A-(ZA); Outlook St

Johannesburg, 28 July 2014 — Global Credit Ratings (“GCR”) has today accorded initial national scale ratings to IEMAS Financial Services (Co-operative) Limited of A-(ZA) and A2(ZA) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, GCR has accorded an international scale rating to IEMAS Financial Services (Co-operative) Limited of BB+; with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

GCR has accorded the above credit rating(s) to IEMAS Financial Services (Co-operative) Limited (“IEMAS”, “the company”) based on the following key criteria:

The ratings reflect the company’s intrinsic credit strength, and its established lending franchise, good risk management practices, profitable double bottom line, and also the demonstrated support from its members/funders – although no state support was factored into the ratings.

On a simulated basis, the company continues to build capital at a rate in excess of what it absorbs for organic growth (although this does fluctuate depending on the reference year). This is confirmed when running the company’s historical and current balance sheets through our normal capital/business scenario stress tests, although the suggested target level has been rising steadily, approaching the actual outputs.

Portfolio performance was generally strong over the review period, with the company posting turnout rates equivalent to, and in some cases better than, commercial financiers, primarily as a result of an employer payroll based collections system.

Leveraging off investors’ and members’ appetites for the company’s business case, as well as an improved capacity to execute its lending strategy, profits remained resilient, even in a tough market. Therefore, when measured with a commercial yardstick: margins were held stable, slower insurance revenues and higher loan losses were absorbed with little disruption, while expenses were better controlled. Looking ahead, the company is budgeting for another tough trading period, although considering forecasts together with the interim trading data, the company should, all things being equal, end the year ahead of budget.

Further progress in the company’s market positioning, trading performance, financial profile and portfolio collections track record (both continuing and arrears loan books) could have a positive impact on the ratings, while a ratings downgrade may be triggered by a materially weakening operating environment, as well as credit losses significantly above expectations. Negative rating action could also be considered on the back of larger-than-anticipated liquidity gaps, less stringent (or revisions in) credit criteria, and a weaker franchise or geographical diversification.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
First time/new rating First time/new rating

ANALYTICAL CONTACTS

Primary Analyst
Dirk Greeff
Head: Financial Institution Ratings
(011) 784-1771
dgreeff@globalratings.net

Secondary Analyst
Kurt Boere
Credit Analyst
(011) 784-1771
boere@globalratings.net

Committee Chairperson
Eyal Shevel
Head: Corporate Ratings
(011) 784-1771
shevel@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

GCR’s Global Master Criteria for Rating Banks and Other Financial Institutions (April 2014)
GCR’s Global Summary Criteria for Rating Finance and Leasing Companies (April 2014)

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; c.) such rating was an independent evaluation of the risks and merits of the rated entity; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, IEMAS Financial Services (Co-operative) Limited, and GCR has been compensated for the provision of the ratings.

IEMAS Financial Services (Co-operative) Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to IEMAS Financial Services (Co-operative) Limited with no contestation of/changes to the ratings.

The information received from IEMAS Financial Services (Co-operative) Limited and other reliable third parties to accord the credit rating included the latest audited annual financial statements for August 2013 (plus three years of comparative numbers), most recent year to date management accounts to January 2014, and a breakdown of facilities available and related counterparties.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS REPORT

Balance Sheet

Basic financial statements, usually accompanied by appropriate disclosures that describe the basis of accounting used in its preparation and presentation of a specified date the entity’s assets, liabilities and owners’ equity. Also known as a statement of financial position.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit risk

Risk that a party to a contractual agreement or transaction will be unable to meet their obligations or will default on commitments. Credit risk can be associated with almost any transaction or instrument such as swaps, repos, CDs, foreign exchange transactions, etc. Specific types of credit risk include sovereign risk, country risk, legal or force.

Default

Failure to make loan payments on a timely basis or to comply with other terms/requirements as stipulated in the loan agreement.

Diversification

The principle that a portfolio in which assets are separated into different industry sectors, geographic regions and firms will embody less overall risk than one in which assets are concentrated into a few sectors, regions and firms.

Financial Institution

An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.

Financial Statements

Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time and its results of operations for a period then ended.

Franchise

Business or banking franchise; a bank’s business.

Income Statement

Summary of the effect of revenues and expenses over a period of time.

Liquidity Gap

Discrepancy between incoming cash flows from the cover pool and interest or principal payments due on the privileged liabilities.

Liquidity Risk

Liquidity is the ability fund increases in assets and meet obligations as they become due, without incurring unacceptable losses.

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.

Sovereign Risk

The risk of default by the government of the country on its obligations.

GCR accords IEMAS Financial Services (Co-operative) Limited’s initial rating of A-(ZA); Outlook Stable.

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