Global Credit Ratings has accorded the above credit rating(s) on FBC Building Society based on the following key criteria:
The ratings reflect improvement in FBC Building Society’s financial performance, enabling sustained internal capital generation. Core capital increased to US$16.7m at FYE12 (FYE11: US$12.2m). However, total capital of US$19m was still below the regulatory minimum of US$20m for building societies at FYE12. In order to meet the central bank’s capital requirements, the society will be merged with its banking counterpart, FBC Bank Limited – with the legal tenets expected to be fulfilled by 30 June 2013. The operations of the society will be categorised as a semi-autonomous business unit within the bank and the figures will be consolidated, thereby creating a larger institution. That said, the society’s ratings are conditional and will be withdrawn once the merger has been bedded down; to this end, the rating will be reviewed once more within 30 days.
Heightened interest income, owing to a progression in home loans and raised short term lending, together with growth in non-funded income (driven by high revenue property sales) saw profitability end the period at an all-time high. The society’s continued improvement in cost control brought the cost ratio down to 50%.
A substantial uptick in the growth of short term lending, as well as mortgage advances (given the society’s expansion of its housing schemes) gave rise to a concurrent increase in non-performing loans, with the gross NPL ratio ending the period at 4% (F11: 2.6%). However, with the society’s diverse borrowing base and its effective credit administration processes, bad debt risk is considered low. Moreover, 69% of the loan book is secured.
Sustained business growth, along with the impact of the planned merger, is expected to enhance the combined entities financial flexibility; this could have a positive effect on the ratings. However, given the level of uncertainty (political and economic) in the market, an upgrade is unlikely in the near term. The ratings will be sensitive to any weakening in the asset quality indicators, long-term earnings (on the back of an uncertain economic environment) and/or its ability to meet the remaining staggered capital thresholds.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Dec/2005)|
|Long term: BBB-(ZW);|
|Last rating (Sep/2012)|
|Long term: BBB-(ZW);|
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kurt Boere|
|Sector Head: Financial Institution Ratings||Junior Analyst|
|+27 11 784 1771||‘+27 11 784 1771|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
FBC Building Society 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 FBC Building Society with no contestation of the rating.
The information received from FBC Building Society and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, 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.