Johannesburg, 31 August 2016 — Global Credit Ratings has affirmed the national scale ratings assigned to Ecobank Zimbabwe Limited of BBB-(ZW) and A3(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until August 2017.
SUMMARY RATING RATIONALE
The ratings of Ecobank Zimbabwe Limited (“Ecobank”, “the bank”) reflect its strong brand, adequate capitalisation and improving profitability and liquidity over the review period, offset by deteriorating market conditions which could exert downward pressure on asset quality, as well as the bank’s insignificant market position.
Ecobank’s ratings are underpinned by strong financial and technical support provided by its parent company, Ecobank Transnational Incorporated (“ETI”, “the group”), (which GCR expects to continue, particularly in times of financial stress) and synergistic benefits attained from group affiliates.
Ecobank commands market shares of 4.8% in terms of loans and advances; and less than 3.4% in terms of total industry assets and deposits – indicating its relatively low systemic importance in the sector. However, the bank showed improvements in terms of both ranking and market share between 31 December 2014 and 31 December 2015.
Ecobank’s core capital base of USD45.0m at 1H F16 (FYE15: USD46.7m) complied with the current minimum regulatory requirement of USD25m for commercial banks. Following a reduction in risk weighted assets, the bank’s total capital adequacy ratio (“CAR”) and Tier 1 ratio increased to 29.1% and 24.7% at 1H F16 from 24.3% and 22.4% at FYE15 (FYE14: 23.4% and 21.1%) respectively, remaining well above the regulatory minima.
The bank’s gross non-performing loan (“NPL”) ratio increased steadily, reaching 8.2% at FYE15 (FYE14: 6.7%) after a significant decline from 21.8% at FYE12 to 6.0% at FYE13 (driven by significant write-offs). Following sales of NPLs to the Zimbabwe Asset Management Company (“ZAMCO1”), the ratio declined to 2.7% in 1H F16. The level of special mention (or past due but not impaired) loans accounted for a lower 6.9% (FYE14: 7.5%) of total loans at FYE15, despite rising from USD9.9m to USD11.9m during F15. GCR notes the significant increase in the bank’s specific coverage of NPLs to 150.0% at 1H F16 following a decline to 2.6% at FYE15 (FYE14: 38.2%). However, the bank’s asset quality remains vulnerable to deterioration considering the challenging operating environment.
In addition to high depositor concentrations, the bank’s negative contractual asset/liability mismatches at FYE15, given the predominance of short-term deposits (in particular in the 0-30 days’ maturity bucket), heightens liquidity risk. However, the bank’s prudential liquidity ratio was above the minimum regulatory requirement of 30% at FYE15.
Ecobank continues to exhibit resilient earnings performance with net profit after tax (“NPAT”) showing a positive trend since F12 (after recording a loss of USD5.9m in F11). NPAT increased to USD5.2m in F15 from USD2.5m in F14, and profitability as measured by ROaE and ROaA increased to 11.5% and 2.6% in F15 respectively (F14: 6.0% and 1.7% respectively).
The appropriate deployment of capital/funding, a sustained positive earnings trend, improvement in asset quality and liquidity metrics, and strengthening of the bank’s position in the market could lead to upward ratings momentum. 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, and adverse regulatory developments.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July/2005)|
|Long term: BB+(ZW); Short term: A3(ZW)|
|Last rating (August/2015)|
|Long term: BBB-(ZW); Short term: A3(ZW)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Zimbabwe Bank Statistical Bulletin (June 2016)
Ecobank Zimbabwe Limited rating reports (2005-15)
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.
Ecobank Zimbabwe Limited 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 has been disclosed to Ecobank Zimbabwe Limited with no contestation of the rating.
The information received from Ecobank Zimbabwe Limited and other reliable third parties to accord the credit ratings included: • Audited financial results as at 31 December 2015 (and four years of comparative numbers);
• Unaudited management accounts as at 30 June 2016;
• Budgeted financial statements for 2016;
• Latest internal and/or external audit report to management;
• A breakdown of facilities available and related counterparties;
• Corporate governance and enterprise risk framework; and
• Industry comparative data.
The rating above was solicited by, or on behalf of, Ecobank Zimbabwe Limited, 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||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 (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|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.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|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||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 Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account (including taxes).|
|Past Due||Any note or other time instrument of indebtedness that has not been paid on the due date.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Term Deposit||A savings account held for a fixed term. Also called a time deposit. Generally, there are penalties for early withdrawal.|
For a detailed glossary of terms utilised in this announcement please click here
GCR affirms Ecobank Zimbabwe Limited’s rating of BBB-(ZW); Outlook Stable.