Johannesburg, 6 May 2014 — Global Credit Ratings has today affirmed the national scale ratings assigned to CBZ Bank Limited of A+(ZW) and A1(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until 04/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to CBZ Bank Limited based on the following key criteria:
CBZ Bank Limited (“CBZ” or “the bank”) displayed strong balance sheet growth, which has tested its credit and liquidity/funding risk management capabilities, especially given the challenging operating environment. The ratings also incorporate the bank’s local brand recognition and well established market position as the largest bank by deposits and assets.
The bank has a strong capital cushion, with core capital which ended the period 2.9x above the statutory requirement of US$25m. This represents a 20.2% y/y increase, driven by retained earnings, as the bank scaled back its return to shareholders (partially offsetting the sharp drop in income).
CBZ’s gross non-performing loans (“NPL”) ratio reflects a declining trend over the past three years, dropping to 4.9% at F13, fuelled largely by the US$32,4m in bad debts written off and improvements in asset quality. The pressure exerted on the bank by the persisting economic challenges on the bank’s existing arrears is counterbalanced to some extent by its conservative provisioning and level of collateral held.
Earnings dropped by 43.5% to US$17.5m in F13, squeezed by slower loan repayments, a 4.3x increase in impairment charges and higher interest expenses. Looking ahead, the bank expects to drive greater transactional fee income by leveraging on its upgraded ATM platform, and greater tax exempt income from mortgage lending on its low-cost housing development projects.
The bank has a robust funding base and manages its liquidity position cautiously through regular liquidity projections. As such, its liquidity ratio has been increasing constantly, ending above the statutory floor at 41% in F13 (F12: 33.2%). Nevertheless, though the bank’s structural liquidity gap makes sense considering the interest rate environment/outlook, the rate of adjustment, along with the absolute size of the gap is of some concern (demand shortfall jumped from 0.2x to 0.7x capital, running close to the upper limit guide of 1x capital).
Positive rating triggers are premised upon the ability to maintain sound financial fundamentals on an on-going basis, complimented by robust credit and risk management. On the other hand, negative rating triggers are founded on deterioration in risk management giving rise to a stressed credit profile, and adverse macro-economic factors affecting earnings power and asset quality.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2000)
Long term: A-(ZW); Short term: A2(ZW);
Last rating (Sep/2013)
Long term: A+(ZW); Short term: A1(ZW)
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kuzivakwashe Murigo|
|Head: Financial Institution Ratings||Junior Credit Analyst|
|+27 11 784 1771||+27 11 784 1771|
Head: Corporate Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated 2014)
Zimbabwe Bank Statistical Bulletin (2013)
Previous Rating Reports (up to 2013)
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; 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.
CBZ Bank 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 CBZ Bank Limited with no contestation of the rating.
The information received from CBZ Bank Limited 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 report to management, 2014 budgeted financial statements, March 2014 management accounts, corporate governance and enterprise risk framework, capital management policy, and regulatory framework, and a breakdown of facilities available and related counterparties.
GCR affirms CBZ Bank Limited rating of A+(ZW); Outlook Stable.