Announcements Financial Institutions Rating Alerts

GCR affirms African Banking Corporation of Zimbabwe’s national scale long-term issuer rating of BB+(ZW); Outlook Stable.

Rating Action

Johannesburg, 7th July 2020 – GCR Ratings (‘GCR’) has affirmed African Banking Corporation of Zimbabwe’s national scale long term and short term issuer ratings of BB+(ZW) and B(ZW), respectively. The Outlook has been accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
African Banking Corporation of Zimbabwe Long Term issuer National BB+(ZW) Stable Outlook
Short Term issuer National B(ZW)

Rating Rationale

The national scale rating of African Banking Corporation Zimbabwe Limited (“BancABC Zimbabwe”; “the bank”) of BB+(ZW) is reflective of a strong capital position, improving earnings, risk and liquidity profile; balanced by a modest competitive position and relatively weaker funding structure compared to local banking peers. The ratings also benefit from support and integration of the bank with its ultimate parent, the ABCH Holdings Limited.

African Banking Corporation Zimbabwe Limited

The bank’s capitalisation is considered sound, backed by a significant improvement in internal capital generation over the review period. GCR Total Capital to Total Risk Weighted Assets at December 2019 was c.31% from c.34% the previous year, at the same time the internal capital generation improved to c.218% from a c.8% average over the preceding 3 years. The capital position is further consolidated by generous reserving. However, the capital position of banks in the operating environment is under threat from the ongoing hyperinflation in Zimbabwe, which in the case of BancABC Zimbabwe is mitigated by the increasingly dominant foreign currency non-funded income.

BancABC Zimbabwe’s modest business profile constrains the rating. Despite the bank’s wide distribution network, the mobilisation of low-cost deposits has been slow and cost of funds resultantly remained marginally higher compared to local banking peers. Positively, GCR notes the year on year improvements in the cost of funds metrics for the bank. The bank offers a full suite of banking services grouped into three major business pillars namely retail banking, commercial banking, global markets and treasury. Traditionally, the bank has been focused on corporate banking, although in recent years it has started shifting its strategy to grow retail business.

The bank’s risk profile slightly moderates the rating. Despite the bank’s notable improvement in its credit profile, with non-performing loans of c.5% at December 2019 from c.9% at December 2018, they have remained marginally above an industry average of c.4% at December 2019. Also, credit concentration risk is high, top 20 loans contributes to c.51% of the total loan book but this is typical of the operating environment, exposing the bank to an elevated risk of single name idiosyncratic risks. However, high credit concentration is typical of the Zimbabwean banking industry. Positively, loan loss reserves to gross non-performing assets improved to 158.7% at December 2019 from 95.6% at December 2018. Management has observed and expects further improvement for this year despite the constraints of COVID19. The bank is exposed to minimal foreign currency risk.

The funding and liquidity profile of the bank also slightly moderates the rating. The funding structure of the bank is weaker compared to peers. Historically, bank’s funding structure has been characterised by costlier term deposits, a legacy foreign line of credit and interbank market participation, 11% of total deposits as at December 2019. Due to hyperinflation the industry’s depositor profile has increasingly become short term which has also reduced the bank’s cost of funds (along with the entire industry) compared to previous years. Positively, deposit concentration is good, top 20 depositors account for 37% of total deposits. The bank’s liquidity position significantly improved over the review period. GCR liquid assets to customer deposits were c.110% at 31 December 2019 compared to c.29%, same time in 2018. The very strong liquidity profile balances the shortcomings of the funding profile.

The ratings benefit from support and integration of the bank with its ultimate parent, the ABCH Holdings Limited. At this point GCR is of the opinion that the bank is financially sound, and unlikely to call on capital or liquidity support from the parent in the short to medium term. BancABC Zimbabwe is a wholly owned subsidiary of ABCH Holdings Limited.

Outlook Statement

The bank’s outlook is stable, reflective of GCR’s expectation that the bank will sustain its credit profile over the rating horizon against a generally bearish operating environment.

Rating Triggers

We may revise the ratings upwards if we see resilience and/or improvements in the business profile, capitalisation, risk, funding and liquidity metrics after factoring the effects of COVID 19 Pandemic. The ratings may be lowered on the back of material deterioration in the prior mentioned factors.

Analytical Contacts

Primary analyst Kudzanai Samanga Financial Institutions Analyst
Johannesburg, ZA kudzanais@GCRratings.com +27 11 784 1771
Committee chair Corné Els Senior Structured Finance Analyst
Johannesburg, ZA Cornee@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, May 2020
GCR Financial Institutions Sector Risk Score, June 2020
GCR reviews seven Zimbabwean financial institutions under the new criteria, July 2019

Ratings History

BancABC Zimbabwe

Rating class Review Rating scale Rating class Outlook/Watch Date
Long Term issuer Initial National BBB-(ZW) Stable December 2004
Last National BB+(ZW) Stable July 2019
Short Term issuer Initial National A3(ZW) n/a December 2004
Last National B (ZW) n/a July 2019

RISK SCORE SUMMARY

Rating Components & Factors Risk score
Operating environment 1.00
Country risk score 0.00
Sector risk score 1.00
Business profile (2.00)
Competitive position (2.00)
Management and governance 0.00
Financial profile 0.50
Capital and Leverage 2.00
Risk (1.00)
Funding structure and Liquidity (0.50)
Comparative profile 3.00
Group support 3.00
Government support 0.00
Peer analysis 0.00
Total Score 2.50

Glossary

Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
Capital The sum of money that is invested to generate proceeds.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
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.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Market An assessment of the property value, with the value being compared to similar properties in the area.
National Scale Rating National scale ratings measure creditworthiness relative to issuers and issues within one country.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Performing An obligation that performs according to its contractual obligations.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
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.
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.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to BancABC Zimbabwe. The ratings above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

BancABC Zimbabwe participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from BancABC Zimbabwe and other reliable third parties to accord the credit rating included:

  • Audited financial results of BancABC Zimbabwe as at 31 December 2019;
  • Management accounts as at 31 March 2020
  • A breakdown of facilities available and related counterparties; and
  • Industry comparative data.
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