Rating Action
Johannesburg, 09 July 2021 – GCR Ratings (“GCR”) has affirmed First Capital Bank Zimbabwe Limited’s national scale long and short-term issuer ratings of A+(ZW) and A1(ZW) respectively, with an Evolving Outlook.
| Rated Entity | Rating class | Rating scale | Rating | Outlook/Watch |
| First Capital Bank Zimbabwe Limited | Long Term issuer | National | A+(ZW) | Evolving Outlook |
| Short Term issuer | National | A1(ZW) |
Rating Rationale
The national scale issuer ratings on First Capital Bank Zimbabwe Limited (“FCB Zimbabwe”, “the bank”) reflect the bank’s modest competitive position supported by above average business diversification, resilient franchise strength, and support structure through its parent FMBcapital Holdings Plc. Furthermore, the ratings factor adequate albeit constrained capitalisation, a relatively stable funding structure and appropriate liquidity. The outlook is reflective of the adverse operating conditions exacerbated by a hyperinflationary environment, on-going ramifications of COVID-19 pandemic and unstable monetary policy resulting in a more volatile financial profile.
The bank has a relatively sound competitive position supported by consistent market shares in both customer deposits and advances. Franchise strength is sound, reflected partly by good customer retention and low cost of funds. Revenue stability and creation is broadly in line with banking sector peers with some reliance on market sensitive income. In the above consideration, GCR also takes into account the risk of value erosion of the net monetary balance sheet and capital as a result of hyperinflation and exchange rate devaluation.
Capitalisation is adequate supported by a GCR capital ratio of 21.6% at 31 December 2020. In March 2021, core capital (c.USD28m) was slightly below the regulatory target of USD30m required by 31 December 2021. At the current interbank rate, the bank may meet the target via organic growth. Given the mix in the capital base between local and foreign currency denominated assets, the tracking towards the USD30m target will be impacted by the volatility in the exchange rates. We expect pressure on profitability to persist, balancing the impact of hyperinflation on the net monetary asset balance sheet offset by value preservation strategies. Given the adverse operating conditions, reserve coverage was adequate.
The risk profile is ratings neutral. The bank had moderately low credit risk supported by a very low gross non-performing loan (“NPL”) ratio of below 0.13% at 31 March 2021 (FY2020: 0.16%); off-set by moderately high single name concentrations with the top 20 exposures contributing 62% to total exposures at 31 March 2021. NPL balances were driven by the retail portfolio with no NPL’s on the corporate book in March 2021. Nonetheless, cognisance is taken of the prevailing challenging operating environment, which poses risk to the bank’s asset quality despite adherence to stringent credit policies. In the local market context, foreign exchange risk was moderately high mitigated by exchange rate stability. In March 2021, FCB Zimbabwe had a regulatory currency net open position (including legacies).
The funding and liquidity assessment is a ratings positive taking into account an average funding structure and adequate liquidity. The funding structure is broadly comparable to rated peers, with demand customer deposits (mostly corporate) comprising the bulk of funding and short-term maturity mismatches in its asset/liability profile. At March 2021, c.53% of deposits were in foreign currency with moderately low top 20 deposit concentration peers of 32% relative to peers. Nonetheless, the bank remains susceptible to external shocks, further exacerbated by the challenging operating environment. Liquidity was good, mitigating structural funding risks. While local currency liquidity is tight (due to stringent regulatory monitoring), foreign currency (“FX”) liquidity is appropriate, evidenced by a high FX liquidity regulatory ratio of 92% at 31 March 2021. Furthermore, GCR liquid asset coverage of customer deposits was sound at 82% at 31 December 2020.
The ratings benefit from support and integration of the bank with its ultimate parent, FMBcapital Holdings Plc through Afcarme Holdings Zimbabwe (Private) Limited (“Afcarme”). Afcarme holds 53% of FCB Zimbabwe, with the balance split between employee share ownership trust (15%) and the rest with less than 5% shareholding.
Outlook Statement
The outlook is evolving premised on the volatile operating environment, monetary policy, exacerbated by hyperinflation creating high likelihood of frequent change on the financial profiles of financial institutions operating therein. In this regard, GCR will maintain stringent monitoring and surveillance of rated entities.
Rating Triggers
National scale ratings reflect relativities to the local Zimbabwean peers only. Given the operating environment there is implied volatility in the ratings. A positive or negative ratings movement could follow a change in capitalisation, asset quality or liquidity.
Analytical Contacts
| Primary analyst | Vimbai Mandebvu | Senior Financial Institutions Analyst |
| Johannesburg, ZA | vimbaim@GCRratings.com | +27 11 784 1771 |
| Committee chair | Vinay Nagar | Senior Financial Institutions Analyst |
| Johannesburg, ZA | vinay@GCRratings.com | +27 11 784 1771 |
Related Criteria and Research
| Criteria for the GCR Ratings Framework, May 2019 |
| Criteria for Rating Financial Institutions, May 2019 |
| GCR Ratings Scales, Symbols & Definitions, May 2019 |
| GCR Country Risk Scores, July 2021 |
| GCR Financial Institutions Sector Risk Score, June 2021 |
| Jurisdictional Supplement for Criteria, July 2020 |
Ratings History
First Capital Bank Zimbabwe Limited
Risk Score Summary
| Rating Components & Factors | Risk Scores |
| Operating environment | 1.00 |
| Country risk score | 0.00 |
| Sector risk score | 1.00 |
| Business profile | 1.00 |
| Competitive position | 1.00 |
| Management and governance | 0.00 |
| Financial profile | 1.25 |
| Capital and Leverage | 0.50 |
| Risk | 0.00 |
| Funding and Liquidity | 0.75 |
| Comparative profile | 1.25 |
| Group support | 1.25 |
| Government support | 0.00 |
| Peer analysis | 0.00 |
| Total Score | 4.50 |
Glossary
| Balance Sheet | Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed. |
| Capital | The sum of money that is invested to generate proceeds. |
| Cash | Funds that can be readily spent or used to meet current obligations. |
| Debt | An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period. |
| Diversification | Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in. |
| Exposure | Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks |
| Income | Money received, especially on a regular basis, for work or through investments. |
| Interest | Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan. |
| Issuer | The party indebted or the person making repayments for its borrowings. |
| Leverage | With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt. |
| 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. |
| Long Term Rating | See GCR Rating Scales, Symbols and Definitions. |
| Margin | A term whose meaning depends on the context. In the widest sense, it means the difference between two values. |
| Market | An assessment of the property value, with the value being compared to similar properties in the area. |
| Maturity | The length of time between the issue of a bond or other security and the date on which it becomes payable in full. |
| Rating Outlook | See GCR Rating Scales, Symbols and Definitions. |
| Risk | The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives. |
| Short Term Rating | See GCR Rating Scales, Symbols and Definitions. |
| Short Term | Current; ordinarily less than one year. |
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to First Capital Bank Zimbabwe Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
First Capital Bank Zimbabwe Limited participated in the rating process via video conference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from First Capital Bank Zimbabwe Limited and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2020
- Unaudited management accounts as at 31 March 2021
- Breakdown of facilities
- Banking sector information and Industry comparative data
- Other related documents.
Due to severe foreign currency shortages, hyperinflation and significant monetary and exchange control policy changes over the last 12-18 months in our opinion, the national scale credit ratings on Zimbabwean entities are not directly comparable to credit ratings and risk scores within other markets. Furthermore, outlook statements may fail to capture forward looking trends due to the extreme volatility in the operating environment and audited opinions. See the latest Jurisdictional Supplement for Criteria, published July 2020.
