Announcements

GCR affirms Ecobank Zimbabwe Limited’s rating of BB+(ZW); Outlook Stable.

Johannesburg, 4 September 2014 — Global Credit Ratings has affirmed the national scale ratings assigned to Ecobank Zimbabwe Limited of BB+(ZW) and A3(ZW) in the long term and short term respectively, with the outlook accorded as Stable. The rating(s) are valid until 08/2015.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Ecobank Zimbabwe Limited based on the following key criteria:

Ecobank Zimbabwe Limited’s (“Ecobank” or “the bank”) ratings are supported by the strong financial and technical support offered by its parent company Ecobank Transnational Incorporated (“ETI” or “the group”) and synergistic benefits attained from group affiliates.

In tandem with the growth momentum achieved in recent years, the bank has continued to expand its capital base. In this regard, the bank received a capital injection of US$7.5m from ETI in June 2013. This, supported by the retention of profits resulted in a 28.3% increase in core capital to US$38.1m at FYE13 (keeping the bank adequately capitalised). That said, the bank expects to augment its capital base and meet the statutory required minimum of US$100m by 2020, through a combination of additional capital injections and organic growth.

Non-performing loans (“NPLs”) dropped to 4.1% of gross loans from 21.8% recorded in the prior year, fuelled by significant write-offs, recoveries, restructurings and credit growth. Nonetheless, of concern is the bank’s high credit concentration (rendering it vulnerable to high value delinquencies).

Ecobank reported a 3.2x jump in pre-tax profit to US$2.4m for F13, driven by high yielding loans, which were financed by relatively cheap deposits, as well as improved fee and commission income, on account of credit lines which were utilised to support letters of credit and guarantee transactions. Similarly, at 1H F14, the bank’s pre-tax profit stood 27.3% above the comparative period’s US$1.1m, owing to the aforementioned drivers.

Liquidity management has become increasingly pertinent, given the absence of a lender of last resort (“LOLR”), restrained interbank activity, the short tenor of deposits and market-wide illiquidity. Consequently, while benefiting from credit lines, the bank has focused on managing its funding/liquidity position through the anticipation and monitoring of market trends, while retaining positive liquidity positions across all maturity buckets.

Positive rating triggers could emanate from further growth in its business franchise within the country, continued acceptable asset quality, and an ability to maintain sound profitability. Ecobank’s ratings could come under pressure if the persisting tough economic conditions and strong credit growth adversely affect financial fundamentals, in particular asset quality, funding position and earnings potential. In addition, the bank’s ratings could be negatively impacted by adverse indigenisation policies.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Jul/2005)
Long term: BB+(ZW); Short term: A3(ZW)
Outlook: Positive

Last rating (August/2013)
Long term: BB+(ZW); Short term: A3(ZW)
Outlook: Negative

ANALYTICAL CONTACTS

Primary Analyst
Dirk Greeff
Head: Financial Institution Ratings
(011) 784-1771
dgreeff@globalratings.net

Secondary Analyst
Kuzivakwashe Murigo
Credit Analyst
(011) 784-1771
murigo@globalratings.net

Committee Chairperson
Marc Chadwick
Head: Insurance Ratings
(011) 784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Banking Criteria (updated April 2014)
Zimbabwe Bank Bulletin (December 2013)
Ecobank 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.

Ecobank Zimbabwe Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Ecobank Zimbabwe Limited with no contestation of the rating.

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.

The information received from Ecobank Zimbabwe Limited and other reliable third parties to accord the credit rating included the 31 December 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, 30 June 2014 management accounts, corporate governance and enterprise risk framework, capital management policy, 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

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.

Core Capital

See primary capital.

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.

Liquidity Risk

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

Non-performing loan

When a borrower is overdue, typically 90 + days in arrears or as defined in the transaction documents.

Primary Capital

Primary capital consists of issued ordinary share capital, hybrid debt capital, perpetual preference share capital, retained earnings and reserves. This amount is then reduced by the portion of capital that is allocated to trading activities and other regulatory deductions.

Retained Earnings

The accumulation of an entity’s profits less any dividends paid out.

Sovereign Risk

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

Write-off

The total reduction in the value of an asset.

GCR affirms Ecobank Zimbabwe Limited’s rating of BB+(ZW); Outlook Stable.

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