Johannesburg, 24 Jun 2014 — Global Credit Ratings has today affirmed the national scale ratings assigned to BancABC Tanzania of BB+(TZ) and B(TZ) in the long term and short term respectively; with the outlook accorded as Negative. The ratings are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to BancABC Tanzania based on the following key criteria:
The ratings accorded to BancABC Tanzania (“the bank”) reflect its growing franchise value and proven support structure, with both financial and operational support provided by its parent company, ABC Holdings Ltd. These are, however, partially offset by a weak risk management structure, shown by the number of statutory breaches still being dealt with.
The bank remains undercapitalised despite a further capital injection from shareholders totalling US$10m (FYE12: US$7m) in F13 via a rights issue. While the total risk weighted capital adequacy ratio climbed to 10.7% from 3.3% as at FYE13 as a result, the ratio was still below the statutory minimum of 12%. The Bank of Tanzania (“BoT”) has given BancABC Tanzania until October 2014 to remedy the breach. The bank’s capital amounted to TShs35.2bn as at FYE13. Management advised that shareholders had committed to inject additional capital to comply with regulations.
Asset quality indicators improved following the sale of the non performing exposures totalling TShs64bn (gross) to Tanzania Development Finance Company Limited (“TDFL”). Gross impaired loans decreased by 86.9% to 5.0% (FYE12: 33.3%) of gross loans as at FYE13. Specific provisions covered 57.2% of NPLs in F13 (F12: 32.5%). Provisions against all impaired loans are based on the net recoverable amount (after taking into account collateral). The realisation of security, however, has proved problematic in Tanzania. Net NPLs amounted to 2.3% and 9.0% of net loans and total capital respectively as at FYE13.
The bank’s loss before tax for F13 narrowed to TShs5.1bn from TShs11.9bn in the prior year. The improvement is largely due to the decline in impairment charges to TShs1.7bn from TShs8.0bn in F12.
A positive change in the ratings is premised on additional capital injections to regularise the bank’s capital adequacy position, a further reduction in NPLs and improving asset quality indicators. The diversification of the loan portfolio and funding base, a reduction in the cost of funds (on the back of the retail strategy) and a positive earnings trend will also be positively viewed. However, a continual loss making position, asset quality deterioration, given the lag between growth in advances and the emergence of risk from new loans, and a further decline in the capital base would place the ratings under pressure.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Nov/2009)
Long term: BBB-(TZ); Short term: A3(TZ);
Last rating (Jun/2013)
Long term: BB+(TZ); Short term: B(TZ);
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 (February 2014)
RATING LIMITATIONS AND DISCLAIMERS
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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; 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 Tanzania 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 Tanzania with no contestation of the rating.
The information received from BancABC Tanzania 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 Tanzania’s rating of BB+(TZ); Outlook Negative.