Announcements

GCR affirms ABC Holdings Limited’s rating of BB+(BW); Outlook Stable.

Johannesburg, 24 November 2017 — Global Credit Ratings has affirmed the national scale ratings assigned to ABC Holdings Limited of BB+(BW) and A3(BW) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until November 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to ABC Holdings Limited (“ABCH”, “the group”) based on the following key criteria:

ABCH is a bank holding company (registered in Botswana) with operations in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe (trading under the brand name BancABC). The ratings are constrained by ABCH’s weak, albeit improving asset quality, and the vulnerability of capital to further asset quality stress and/or operating losses. Furthermore, the ratings reflect the group’s weak profitability, which has been negatively impacted by the challenging operating conditions in most target markets.

The aforementioned constraints are partially offset by the acquisition of ABCH by Atlas Mara Limited (“Atlas Mara”) in 2014, and demonstrated support for the group, with financial and operational support and strategic direction provided by the new shareholders. Atlas Mara is a London-listed financial services group with operations in seven sub-Saharan African countries. Atlas Mara had a consolidated asset base of USD2.9bn at 1H FY17, of which ABCH contributed 74.1%. During Q3 2017, Atlas Mara completed a strategic financing transaction with existing investors and new shareholder Fairfax Africa Holdings Corporation through a USD200m equity raise, which saw Atlas Mara’s equity increase to USD757.5m at 30 September 2017 from USD573.1m at 30 June 2017 (30 September 2016: USD559.4m). For the nine months to 30 September 2017, Atlas Mara reported a net profit of USD15.8m, compared to USD4.0m for the comparative period in 2016, largely driven by improved efficiencies.

Asset quality remains a key rating concern, despite some improvements. The group’s gross non-performing loan (“NPL”) ratio decreased to 13.3% at FY16 (FY15: 15.6%). However, NPLs net of provisions were 81.1% of capital at FY16 (FY15: 107.6%), which is still considered high (and a significant balance sheet risk).

ABCH reported a loss of USD1.4m for FY16, down from a profit of USD0.5m in FY15, mainly due to a 12.6% rise in operating expenses (compared to operating income growth of 5.6%). However, the group announced a profit of USD2.4m for 1H FY17. A demonstrated track record of stable/improving profitability would improve GCR’s assessment of the group’s earnings profile.

ABCH’s consolidated capital and reserves decreased to USD113.4m at FY16 (FY15: USD115.7m) primarily due to downward movements in reserve balances, which saw the group’s capital/assets ratio reduce to 4.8% at FY16 (FY15: 6.2%). Direct funding and liquidity risks are partly ameliorated through maintaining a liquid balance sheet, holding reserves in highly tradeable instruments and money market placements, and access to intergroup funding.

A ratings upgrade would be premised on the successful repositioning of the group, influenced by Atlas Mara’s growth aspirations, financial support, experience and expertise. Furthermore, a sustained improvement in asset quality metrics (including substantial progress in NPL workouts), a positive earnings trend, solid liquidity and capital buffers, and a more stable and diversified funding base, would be positively considered. However, continued pressure on profitability from high credit costs, the deterioration of liquidity and capital metrics in tandem with an escalation of losses from the loan portfolios, and adverse macroeconomic, regulatory and political developments across operating jurisdictions, would place downward pressure on the ratings.

NATIONAL SCALE RATINGS HISTORY
Initial rating (December 2004)
Long-term: BBB-(BW); Short-term: A3(BW)
Outlook: Negative
 
Last rating (December 2016)
Long-term: BB+(BW); Short-term: A3(BW)
Outlook: Stable
 
 
ANALYTICAL CONTACTS    
Primary Analyst    
Kurt Boere    
Senior Credit Analyst    
(011)784-1771    
boere@globalratings.net    
     
Committee Chairperson    
Jennifer Mwerenga    
Senior Credit Analyst    
(011) 784-1771    
jennifer@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

Rating reports of subsidiary banks, 2017

ABCH rating reports (2004-16)

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.

ABC Holdings Limited participated in the rating process via 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 ABC Holdings Limited with no contestation of the rating.

Information received:

  • Audited financial results of the group as at 31 December 2016
  • Unaudited interim results of the group as at 30 June 2017
  • Two years of comparative audited financial results/statements
  • Budgeted financial statements for 2017
  • Latest internal and/or external report to management
  • Reserving methodologies
  • A breakdown of facilities available and related counterparties
  • Corporate governance and enterprise risk framework
  • Industry comparatives and regulatory framework

The ratings above were solicited by, or on behalf of, ABC Holdings 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 SECTOR 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.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
Capital The sum of money that is invested to generate proceeds.
Capital Base The issued capital of a company, plus reserves and retained profits.
Corporate Governance Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating Agency An entity that provides credit rating services.
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.
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.
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.
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.
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.
National Scale Rating Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
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.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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.
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.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
Capital The sum of money that is invested to generate proceeds.
Capital Base The issued capital of a company, plus reserves and retained profits.
Corporate Governance Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating Agency An entity that provides credit rating services.

For a detailed glossary of terms please click here

GCR affirms ABC Holdings Limited’s rating of BB+(BW); Outlook Stable.

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