Announcements

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

Johannesburg, 30 Sep 2014 — Global Credit Ratings has today 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 Stable. The rating(s) are valid until 09/2015.

SUMMARY RATING RATIONALE

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

The accorded ratings reflect Central Africa Building Society’s (“CABS” or “the Society”) established franchise value and leading market position within the Zimbabwean banking space. Furthermore, the ratings are underpinned by the demonstrated financial and technical support provided by its parent company, Old Mutual Zimbabwe Limited (“Old Mutual”), giving rise to the strong brand recognition in the local market.

Given the current level of organic earnings growth, the Society is considered adequately capitalised and boasts strong protection ratios (remaining well above the stipulated minima).

Asset quality wise, the Society’s credit metrics and protection factors came under notable pressure, particularly the rate at which loans transitioned through the arrears buckets. Over the short-to-medium term, further asset quality deterioration can be expected, given the considerable stresses in the local market.

The challenging operating environment weighed on the Society’s performance during F13 (profitability decreased by 22.9% to US$18.3m). The tightening economic market and higher operating costs are likely to have a continued negative impact on the Society’s performance during 2H F14.

In terms of funding, the Society’s ability to attract deposits and lines of credit in a tight market is a relative strength, though wholesale funding dependence remains a concern.

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 fragile operating environment increases the error margin on all forward looking scenarios. This, combined with sovereign linked risk makes an upgrade unlikely at this stage. In the longer term, the appropriate deployment of capital/funding and improving profitability (while maintaining credit protection factors) may have a positive impact on the ratings. A weakened support floor or, worst case, the complete absence of support, will negatively affect the ratings. Furthermore, the ratings will be sensitive to deterioration in asset quality, long-term earnings generation and capitalisation.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Oct/2000)
Long term: A+(ZW); Short term: A1+(ZW)
Outlook: Stable

Last rating (Sep/2013)
Long term: A+(ZW); Short term: A1(ZW)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Kurt Boere
Credit Analyst
(011) 784-1771
boere@globalratings.net

Committee Chairperson
Omega Collocott
Head: Financial Institution Ratings
(011) 784-1771
omegac@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Banking Criteria (updated April 2014)
Zimbabwe Bank Statistical Bulletin (2013)
Previous Rating Reports (up to 2013)

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.

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.

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 information received from Central Africa Building Society and other reliable third parties to accord the credit rating included the latest audited annual financial statements as at 31 December 2013 (plus four years of comparative numbers), most recent year to date unaudited published accounts to 30 June 2014, 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.

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

Arrears Bucket

A non-performance classification, classified according to the number of days in arrears, i.e. 30, 60, 90 days.

Asset Quality

The ability of a bank’s assets, especially its loans, to continue to perform according to its terms and generate net interest income for the bank.

Balance Sheet

Basic financial statements, usually accompanied by appropriate disclosures that describe the basis of accounting used in its preparation and presentation of a specified date the entity’s assets, liabilities and owners’ equity. Also known as a statement of financial position.

Building society

A type of deposit-taking financial institution that engages in long-term mortgage lending, primarily to finance owner-occupied residential mortgages/property.

Corporate Governance

The manner in which an entity is governed and decisions are undertaken.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit risk

Risk that a party to a contractual agreement or transaction will be unable to meet their obligations or will default on commitments. Credit risk can be associated with almost any transaction or instrument such as swaps, repos, CDs, foreign exchange transactions, etc. Specific types of credit risk include sovereign risk, country risk, legal or force.

Default

Failure to make loan payments on a timely basis or to comply with other terms/requirements as stipulated in the loan agreement.

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 and its results of operations for a period then ended.

Franchise

Business or banking franchise; a bank’s business.

Income Statement

Summary of the effect of revenues and expenses over a period of time.

Liquid Assets

Assets, generally of a short term, that can be converted into cash.

Liquidity Risk

Liquidity is the ability to fund increases in assets and meet obligations as they become due, without incurring unacceptable losses.

Sovereign Risk

The risk of default by the government of the country on its obligations.

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

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