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.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2000)|
|Long term: A+(ZW); Short term: A1+(ZW)|
|Last rating (Sep/2014)|
|Long term: A+(ZW); Short term: A1(ZW)|
|Primary Analyst||Committee Chairperson|
|Kurt Boere||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
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
|Building Society||A type of deposit-taking financial institution that engages in long-term mortgage lending, primarily to finance owner-occupied residential mortgages/property.|
|Capital||The sum of money that is invested to generate proceeds.|
|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.|
|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.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|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.|
|Long term||Not current; ordinarily more than one year.|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term||Current; ordinarily less than one year.|
For a detailed glossary of terms utilised in this announcement please click here