Johannesburg, 5 June 2014 — Global Credit Ratings has affirmed the national scale ratings assigned to African Banking Corporation of Zimbabwe Limited of BBB(ZW) and A3(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until 05/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to African Banking Corporation of Zimbabwe Limited, based on the following key criteria:
The ratings of African Banking Corporation of Zimbabwe Limited (“BancABC Zimbabwe” or “the bank”) are supported by solid capitalisation, improved earnings power, growing franchise value and strong financial support from its parent ABC Holdings Limited (“ABCH” or “the group”).
Core capital rose sharply by 72.9% to end F13 at US$70.7m, fuelled by a debt-to-equity conversion of shareholder loans, an additional capital injection, and high earnings generation. In addition, risk weighted assets shrunk by 6.2% at end-F13, seeing the bank’s capital adequacy ratio end at 16.8% (up 3% and staying well above the statutory requirement of 12%).
The bank’s non-performing loans (“NPLs”) ended the F13 period at US$45.5m, accounting for 13.3% of gross loans, down from its peak of 19.2% (US$69.9m) the year before. This decline was due to US$7.4m written off, a stricter credit granting criteria and a focus on collections. However, the US$28.4m jump in past due but not impaired loans highlights the need for even greater emphasis on the bank’s collection processes.
As at FYE13, the bank registered a pre-tax profit of US$19.6m (up 35.2% from the prior year), driven by growth in less price sensitive high yielding personal loans, whose income contribution offset the attrition of non-funded income, under the implementation of the Memorandum of Understanding (“MoU”), the uptick in impairment charges and operating expenditure. However, at the interim (1Q F14) pre-tax profit came in 23% lower than the previous corresponding period at US$4.7m, weighed down largely by bad debt charges.
Liquidity risk has been moderated to some extent by a larger liquid asset portfolio relative to short term liabilities. As such, the bank’s liquidity ratio ended F13 at 30.4% compared to the 28.9% recorded a year earlier (ending just above the prevailing prudential minimum of 30%). Of concern is the 1-month contractual maturity shortfall which remained high at end-F13, equating to 1.2x of capital and running well above the upper limit guide of 1.0x capital.
Further improvements in earnings performance, while maintaining a sound credit profile will be considered positive together with a sound track record of the deployment of additional capital. On the other hand, uncontrolled growth leading to deterioration in asset quality, adverse regulatory policies especially on indeginisation and debilitated macro-economic conditions could negatively impact the ratings.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2004)
Long term: BBB-(ZW); Short term: A3(ZW)
Last rating (Jun/2013)
Long term: BBB(ZW); Short term: A3(ZW)
Senior Credit Analyst
Junior Credit Analyst
Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated April 2014)
Zimbabwe Bank Statistical Bulletin (2013)
Previous Rating Reports (up to 2013)
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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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
African Banking Corporation of Zimbabwe 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 rating/s has been disclosed to African Banking Corporation of Zimbabwe Limited with no contestation of the rating.
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.
The information received from African Banking Corporation of Zimbabwe Limited 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 report to management, 2014 budgeted financial statements, March 2014 management accounts, corporate governance and enterprise risk framework and regulatory framework.
GCR affirms African Banking Corporation of Zimbabwe Limited’s rating of BBB(ZW); Outlook Stable.