Johannesburg, 24 Jun 2014 – Global Credit Ratings has today affirmed the national scale ratings assigned to BancABC Zambia of BBB-(ZM) and A3(ZM) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to BancABC Zambia based on the following key criteria:
The ratings accorded to BancABC Zambia (“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.
Total capital and reserves grew by 238.9% to ZK521.9m as at FYE13. The phenomenal growth came on the back of a dramatic increase in the minimum regulatory capital for commercial banks from US$2.5m to US$20m for local banks and US$100m/ZK520m for foreign owned banks. The Bank of Zambia (“BoZ”) announced the new minimum capital levels in January 2012, effective 31 December 2012, although the deadline was later extended to December 2013. Accordingly, the bank received additional capital from the parent in the form of US$16m Tier I capital plus US$47m Tier II capital during 4Q F13. The bank is adequately capitalised with a capital adequacy ratio of 45.1% as at FYE13, up from 16.7% in the prior year.
Gross non-performing loans (“NPLs”) grew by 115.4% to ZK28.4m in F13, largely emanating from the corporate and small-to- medium enterprises (“SMEs”) portfolio. Gross NPLs as a percentage of gross advances increased to 3.1% from 1.9% in F12, partly masked by loan growth. Specific provisions covered 46.4% of NPLs, down from 76.9% in F12, pre-collateral. Notwithstanding this, net NPLs remain negligible as a percentage of capital at 2.9% as at FYE13. However, cognisance is taken of the potential lag in arrears following a period of rapid loan growth.
Pre-tax profit grew by 42.1% to ZK53.5m for the period under review, although 18.2% below expectations due to restrained loan growth during the first half of the year, owing to funding and liquidity pressures and the significant reliance on expensive term funding.
Liquidity risk is partly ameliorated through maintaining a liquid balance sheet. Liquid assets/short-term funding increased slightly to 54.1% (FYE12: 53.9%) as at FYE13. The liquidity ratio was maintained above the prudential minimum of 8% throughout F13.
Factors that could trigger a positive rating action include: effective and prudent deployment of capital/funding, a reduction in funding costs on the back of the retail strategy, and a sustained positive earnings trend, while maintaining credit protection factors. However, a decline in earnings and asset quality, due to the lag between the growth in advances and the emergence of risk from new loans, would place ratings under pressure. Furthermore, adverse economic developments on the back of a weak global market could culminate in an increase in the level of distressed borrowers.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Oct/2005)
Long term: BBB-(ZM); Short term: A3(ZM);
Last rating (Jun/2013)
Long term: BBB-(ZM); Short term: A3(ZM);
Sector 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 Zambia 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 Zambia with no contestation of the rating.
The information received from BancABC Zambia 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 Zambia’s rating of BBB-(ZM); Outlook Stable.