GCR affirms Central Africa Building Society’s rating of A+(ZW); Outlook Positive

Johannesburg, 18 Sep 2015 — Global Credit Ratings has affirmed the national scale ratings assigned to Central Africa Building Society of A+(ZW) and A1(ZW) in the long term and short term respectively; with the outlook accorded as Positive. The rating(s) are valid until September 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Central Africa Building Society (“CABS”, “the Society”) based on the following key criteria:

CABS’ ratings reflect its strong brand and reputation, significant market position, acceptable risk management systems, strong capitalisation, and shareholder support. CABS’ ratings are underpinned by strong financial and technical support provided by Old Mutual Zimbabwe Limited and its ultimate parent, Old Mutual Plc.

CABS’ core capital grew by 43.2% year on year to USD83.9m at FYE14, largely through organic earnings growth. The Society’s capital base is considered appropriate relative to its size and level of business risk, whilst providing an adequate buffer against unexpected losses, as reflected by its Tier I and total capital adequacy ratios of 14.1% and 21.7% at FYE14 respectively.

Asset quality metrics improved in F14, partly as a result of write-offs. In GCR’s view, CABS’ asset quality remains vulnerable, due to significant exposures to the country’s stressed consumer environment and a larger stock of special mention (or past due but not impaired) loans (5.3% of gross advances at FYE14 vs. 4.2% at FYE13). At FYE14, non-performing loans (overdue by 90 days or more) represented 7.7% (FYE13: 10.2%) of gross loans and advances, and were 24.3% (FYE13: 18%) covered by provisions.

In F14, operating income grew by 39.3% to USD81.6m and the net surplus rose 31.3% to USD24m. The F14 financial performance reflects stability in almost all key profitability metrics. ROaE was 17.4% (F13: 16.3%), and ROaA continued its downward trajectory, marginally declining to 2.9% (F13: 3.1%) in F14.

CABS exhibited funding mismatches across all maturity buckets, exacerbated by its maturity structure (short-term liabilities versus long-term assets). Nevertheless, the Society prudently manages this risk by maintaining a relatively liquid balance sheet, and adequate liquid assets to cover short-term deposit outflows. The Society’s prudential liquidity ratio of 36% at FYE14 was above the regulatory minimum of 30%.

A ratings upgrade would require maintenance/improvement of CABS’ market position/share, capital and liquidity buffers, asset quality and provision coverage, and profitability metrics. A weakened shareholder support floor will negatively affect the ratings. Furthermore, the ratings may be impacted by deterioration in credit quality, long-term earnings and/or capitalisation, as well as adverse developments in indigenisation policies or their application.

ANALYTICAL CONTACTS

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

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

Zimbabwe Bank Statistical Bulletin (June 2015)

CABS 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.

Central Africa Building Society 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 Central Africa Building Society with no contestation of the rating.

The ratings above were solicited by, or on behalf of, Central Africa Building Society, and therefore, GCR has been compensated for the provision of the ratings.

The information received from Central Africa Building Society and other reliable third parties to accord the credit rating/s included:

• Audited financial results of the Society as at 31 December 2014 (plus four years of comparative numbers);
• Unaudited interim results of the Society as at 30 June 2015;
• Budgeted financial statements for 2015;
• Latest internal and/or external audit report to management;
• Reserving methodologies;
• A breakdown of facilities available and related counterparties;
• Corporate governance and enterprise risk framework;
• Capital management policy; and
• Industry comparative data and regulatory framework.

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

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