Announcements

GCR affirms Barclays Bank of Zimbabwe Limited’s rating of AA-(ZW); Outlook Stable

Johannesburg, 25 May 2015 — Global Credit Ratings has affirmed the national scale ratings assigned to Barclays Bank of Zimbabwe Limited of AA-(ZW) and A1+(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until May/2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Barclays Bank of Zimbabwe Limited (“Barclays” or “the bank”) based on the following key criteria:

Barclays’ ratings reflect its modest risk appetite, strong franchise and robust loss absorption capacity, underpinned by healthy profitability, solid capitalisation and satisfactory asset quality. Furthermore, the bank’s ratings factor in the strong technical and financial support obtainable from its shareholders.

Capitalisation remained strong, mitigating its high credit concentration. Its core and total capital adequacy ratios rose to 14.0% and 20.1%, respectively at FYE14 (FYE13: 12.2%; 16.8%), and remained well above the regulatory minima of 8% and 12% correspondingly. However, although the bank has a substantial capital buffer for the current scale of operations, shareholders will need to address the potential requirement for a capital injection to ensure the bank complies with the statutory minimum core capital of USD100m by 2020.

The bank has consistently displayed adequate control of asset quality, due to its high credit underwriting standards. As such, Barclays recorded a low gross non-performing loan (“NPL”) ratio of 2.0%, against an industry average of 18.9% at FYE14. With negative net NPLs, GCR believes that the bank’s comprehensive provisioning policy and strong loss absorption capacity counterbalances any asset quality pressures emanating from deteriorating economic conditions in Zimbabwe.

Barclays has registered double digit bottom line growth over the past three years. Its earnings more than doubled to USD6.6m in F14 (F13: USD3.0m), supported by a higher net interest margin (due to a substantially lower cost of funding underpinned by a modest retail deposits mobilisation strategy), higher non-interest income, low credit costs and a lower tax charge (benefiting from a reversal of temporary differences). Subsequently, the bank’s profitability as measured by return on average assets and equity rose to 2.2% and 14.1% respectively in F14 (F13: 1.0% and 7.0%).

Given the short dated nature of its deposit profile (as is typical of the domestic banking system), Barclays displayed cumulative gaps in all maturity buckets at FYE14. However, these remain manageable given the bank’s conservative investment policy, which has resulted in a high liquid assets base and ample capital cushion.

An improvement in the operating environment, significant gains in market share, as well as sustained improvements in balance sheet strength while maintaining sound profitability could positively impact the ratings. The ratings will be sensitive to deterioration in asset quality, long-term earnings and capitalisation level, as well as adverse developments in indigenisation policies or their application.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (Sep/2000)    
Long term: AA-(ZW); Short term: A1+(ZW)    
Outlook: Stable    
     
Last rating (May/2014)    
Long term: AA-(ZW); Short term: A1+(ZW)    
Outlook: Stable    

ANALYTICAL CONTACTS

Primary Analyst    
Kuzivakwashe Murigo    
Credit Analyst    
(011) 784-1771    
murigo@globalratings.net    
     
Committee Chairperson    
Omega Collocott    
Sector Head: Financial Institution Ratings    
(011) 784-1771    
omegac@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015

Zimbabwe Bank Statistical Bulletin (December 2014)

Barclays rating reports (2000-14)

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.

Barclays Bank of Zimbabwe Limited participated in the rating process via face-to-face management meetings 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 Barclays Bank of Zimbabwe Limited with no contestation of the rating/s.

Information received from Barclays Bank of Zimbabwe and other reliable third parties to accord the credit rating(s) included;

  • Audited financial results as at 31 December 2014
  • Unaudited interim results at 31 March 2015
  • 5 years of comparative numbers
  • Budgeted financial statements for 2015
  • Latest internal and/or external report to management
  • A breakdown of facilities available and related counterparties
  • Corporate governance and enterprise risk framework
  • Industry comparative data

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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY

Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Asset Quality Asset quality refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (i.e. being paid back in accordance with their terms) and the likelihood that they will continue to perform.
Balance Sheet Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Budget Financial plan that serves as an estimate of future cost, revenues or both.
Capital The sum of money that is invested to generate proceeds.
Capital Adequacy A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.
Corporate Governance Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.
Creditworthiness An assessment of a debtor’s ability to meet debt obligations.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Default Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.
Equity Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Exchange A standardised marketplace in which different assets are traded.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
Financial Statements Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.
Franchise Business or banking franchise; a bank’s business.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquid Assets Assets, generally of a short term, that can be converted into cash.
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. 
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Long term Not current; ordinarily more than one year.
Margin The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Net Interest Margin Net interest margin is the net interest income divided by average interest earning assets.
Non-Performing Loan When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents.
Off Balance Sheet Off balance sheet items are assets or liabilities that are not shown on a company’s balance sheet. They are usually referred to in the notes to a company’s accounts. 
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short Term Current; ordinarily less than one year.
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