Johannesburg, 18 Jun 2014 — Global Credit Ratings has affirmed the national scale ratings assigned to FBC Building Society of BBB-(ZW) and A3(ZW) in the long term and short term respectively; with the outlook accorded as Positive. The ratings are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to FBC Building Society based on the following key criteria:
The accorded ratings are supported by FBC Building Society’s (“FBCBS” or “the society”) reputable track record in the mortgage lending business and improving financial performance, while also taking note of management’s decision not to merge with its banking counterpart, FBC Bank Limited (“FBC” or “the bank”); given that compliance with the minimum capital requirements for building societies and banks of US$80m and US$100m respectively were extended by the Reserve Bank of Zimbabwe (“RBZ”) to 2020.
Driven by robust growth in retained earnings, and a bonus share issue of US$1.1m, the society’s core capital increased to US$23.4m at FYE13 (FYE12: US$16.7m), thus meeting the regulatory minimum of US$20.0m. Similarly, risk-weighted capital is strong in comparison to the stipulated minima and the level of risk assumed.
The significant growth in the loan book, considering the increasing levels of consumer indebtedness, saw the society’s gross non-performing loans (“NPL”) ratio increase to 5.2% at FYE13 (FYE12: 4.0%), marginally above its internal benchmark of 5%, but well below the banking sector average of 15.9%.
Despite the challenging operating environment, the society’s earnings grew by 29.1% to US$7.1m at FYE13, largely driven by noteworthy progression in mortgage loans (given the society’s expansion of its housing schemes) and raised short-term lending, though partially offset by the negative impact of the Memorandum of Understanding (“MoU”) on the society’s interest rates and bank charges.
Liquidity risk is heightened by the society’s maturity structure (short-term liabilities versus long-term assets), high funding concentration, and the absence of a lender of last resort facility. Nevertheless, FBCBS prudently manages this risk by maintaining a highly liquid balance sheet, and adequate liquid assets to cover short-term deposit outflows (58.7%), well above the regulatory minimum of 30%.
The appropriate deployment of capital/funding and improving profitability (while maintaining credit protection factors) may have a positive impact on the ratings.
The ratings will be sensitive to a weakening in earnings and/or asset quality problems associated with inadequately controlled growth, given the deteriorating economic environment.
For a detailed glossary of terms utilised in this announcement please click here
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2005)
Long term: BBB-(ZW);
Last rating (Aug/2013)
Long term: BBB-(ZW); Short term: A3(ZW);
Rating Watch: Yes
Junior Credit Analyst
Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated 2014) Glossary of Terms/Ratios (February 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.
FBC 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 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 December 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external management reports, 2014 budgeted financial statements, March 2014 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.
GCR affirms FBC Building Society’s rating of BBB-(ZW); Outlook Positive.