Announcements

GCR affirms BancABC Mozambique’s rating of BBB-(MZ); Outlook Negative.

Johannesburg, 23 Jun 2014 – Global Credit Ratings has today affirmed the national scale ratings assigned to BancABC Mozambique of BBB-(MZ) and A3(MZ) in the long term and short term respectively; with the outlook accorded as Negative. The rating(s) are valid until 06/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to BancABC Mozambique based on the following key criteria:

The accorded ratings reflect BancABC Moçambique’s (“the bank”) established domestic franchise value, the strength of its parent and its demonstrated willingness to support the Mozambican operation.

The total risk weighted capital adequacy ratio (“RWCA”) declined to 14.8% as at FYE13 (FYE12: 17.9%), due to growth in risk weighted assets, coupled with a 0.4% decline in the capital base (on the back of dividend payments totalling MT33m). Notwithstanding this, the bank remains adequately capitalised, with the capital base (MT771.6m) and RWCA ratio remaining well above the statutory minima.

Asset quality deteriorated further in F13, mainly due to the downgrade of a single exposure amounting to MT180m to the doubtful category. Notwithstanding this, gross impaired loans remained largely unchanged at 8.4% of gross loans, partly masked by the expanded loan book, write-offs and renegotiations. Individually assessed provisions increased 2.5x, with coverage rising from 47.6% to 76.8%, resulting in the bank’s net NPLs lessening to 2.1% and 10.9% of net loans and capital respectively.

A pre-tax profit of MT50.7m was recorded for F13, down 48.0% from the previous period. The earnings performance was impacted by the high impairment charges. Overall, the ROaE and ROaA dropped to 4.5% and 0.4% from 9.8% and 1.1% respectively in F12.

Liquidity risk is partly ameliorated through maintaining a liquid balance sheet. The bank holds reserves in highly tradable instruments or money market placements, with liquid assets amounting to 34.3% of total assets as at FYE13 (FYE12: 30.9%).

Looking ahead, a further weakening of earnings and asset quality problems, associated with inadequately controlled growth, weak credit administration, an uncertain economic/political environment and the weakened global economic outlook could see the ratings come under pressure. Conversely, a positive earnings growth trend, while maintaining credit protection ratios, will be positively considered.

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

NATIONAL SCALE RATINGS HISTORY

Initial rating (Dec/2004)
Long term: BBB-(MZ); Short term: A3(MZ);
Outlook: Stable

Last rating (Jun/2013)
Long term: BBB-(MZ); Short term: A3(MZ);
Outlook: Negative

ANALYTICAL CONTACTS

Primary Analyst
Jennifer Mwerenga
Senior Credit Analyst
(011) 784-1771
jennifer@globalratings.net

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

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Banking Criteria (updated April 2014)
Previous Rating Reports (up to 2013)
Glossary of Terms/Ratios (February 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, 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.

BancABC Moçambique 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 BancABC Moçambique with no contestation of the rating.

The information received from BancABC Moçambique 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 BancABC Mozambique’s rating of BBB-(MZ); Outlook Negative.

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