Johannesburg, 24 Jun 2014 – Global Credit Ratings has today affirmed the national scale ratings assigned to ABC Holdings Limited of BBB-(BW) and A3(BW) in the long term and short term respectively; with the outlook accorded as Evolving. The rating(s) are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to ABC Holdings based on the following key criteria:
The ratings reflect ABC Holdings Limited’s (“ABCH” or “the Group”) strong management team, as well as its growing franchise value across the Southern African Development Community (“SADC”) and East Africa.
The Group’s consolidated capital base grew by 26.0% to BWP1.4bn as at FYE13, mainly through the retention of residual earnings and a debt-to-equity conversion of International Finance Corporation (“IFC”) borrowings amounting to BWP118m (including a derivative balance on the loan of BWP40m). With the exception of Tanzania, the total risk weighted capital adequacy (“RWCA”) ratio for all the subsidiaries was well above the regulatory minima. Following a recapitalisation exercise (via a rights issue) in July 2013, Tanzania’s RWCA ratio climbed to 12% from 3.3% as at FYE12. Consequently, the Bank of Tanzania (“BoT”) lifted a corrective order on the bank to regularise its capital base. However, subsequent to FYE13, the BoT directed the subsidiary to allocate more reserves for its loans, backdated to December 2013. As a result, the bank’s RWCA ratio declined to 10.7% as at FYE13, which was below the statutory minimum of 12%. BoT has given BancABC Tanzania until October 2014 to remedy the breach. Management advised that the matter was being addressed. Notwithstanding this, the entrance of new controlling shareholders, Atlas Mara (though still pending regulatory approval) and the anticipated capital injection across all the subsidiaries, is expected to positively impact the Group’s growth strategy and future prospects.
Credit quality deteriorated further during F13, largely emanating from the Mozambique, Tanzania and Zimbabwe operations. The Group’s non-performing loans (“NPLs”) ended the F13 period at BWP1.1bn, representing 10.0% of gross loans, up from 9.3% the year before, although this was partly masked by loan growth. Specific provisions covered 46.2% of NPLs in F13, up from 27.2% in F12. Provisions are raised after taking into account collateral. The realisation of security, however, has proved problematic in some jurisdictions, especially Tanzania.
Net profit before tax grew by 18.4% to BWP258m in F13, supported by loan growth, higher transaction volumes and higher margins on the retail book primarily in Zambia, Botswana and Zimbabwe. Overall, the ROaA remained flat at 1.2%, while the ROaE declined to 13.5% from 15.6% in F12.
The Group’s highly liquid balance sheet, with a liquid and trading assets to short term funding ratio of 22.7% as at FYE13, up from 18.9% as at FYE12, helps mitigate liquidity risk to a degree.
Looking ahead, a positive trigger on the rating is premised on the anticipated repositioning of the Group, influenced by the new shareholder’s growth aspirations and financial support. Notwithstanding this, improving asset quality and profitability indicators, the diversification of income streams and a reduction in funding costs (on the back of the retail strategy) may have a positive impact on the ratings. Conversely, a weakening of earnings, as well as asset quality problems associated with inadequately controlled growth, given the deteriorating economic environment (on the back of a weakened global outlook), could see the ratings come under pressure.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2004)
Long term: BBB-(BW); Short term: A3(BW);
Last rating (Jun/2013)
Long term: BBB-(BW); Short term: A3(BW);
Senior Credit Analyst
Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated April 2014)
Previous rating reports (up to 2013)
Glossary of Terms/Ratios (February2014)
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 ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
ABC Holdings Limited’s 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 rating/s has been disclosed to ABC Holdings Limited’s with no contestation of the rating.
The information received from ABC Holdings Limited’s and other reliable third parties to accord the credit rating included the December 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external management reports, 2014 budgeted financial statements, April 2014 management accounts, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, industry comparative data and regulatory framework, and a breakdown of facilities available and related counterparties.
GCR affirms ABC Holdings Limited’s rating of BBB-(BW); Outlook Evolving.