Johannesburg, 30 Apr 2014 — Global Credit Ratings has affirmed the national scale ratings assigned to MBCA Bank Limited of A(ZW) and A1(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until 04/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to MBCA Bank Limited based on the following key criteria:
MBCA Bank Limited (“MBCA” or “the bank”) benefits from the technical expertise and strong funding support from Nedbank Group Limited (“Nedbank” or “the group”), given its controlling stake in the bank. Furthermore, the ratings are supported by the bank’s ability to leverage off its international brand.
The bank’s Tier I capital grew by 15.2% to US$28.0m at FYE13 (FYE12: US$24.3m), largely through organic earnings growth, thus meeting the regulatory minimum of US$25.0m. Similarly, risk-weighted capital is strong in comparison to the regulatory minimum, set internal benchmarks and the level of risk assumed.
Despite deteriorating economic conditions, the quality of the bank’s loan book remained sound (gross non-performing loans (“NPL”) ratio of 2.7% at FYE13), reflecting its strict and selective lending criteria.
The bank’s performance in F13 reflected the effects of a challenging economic/operating environment, with profit after tax decreasing by 18.5% to US$4.0m (FYE12: US$5.0m). Furthermore, restrained asset growth and higher operating costs are likely to have a continued impact on the bank’s performance during the remainder of the financial year.
Despite the funding base trending downwards, the bank maintained a highly liquid balance sheet in F13, as shown by a liquidity ratio of 60.6% (FYE12: 51.0%), well above the regulatory minimum of 30%.
Despite indigenisation and economic empowerment legislation remaining unchanged, indications are that Government’s approach towards the indigenisation of the banking sector has somewhat softened. Furthermore, cognisance was taken of Government’s actions to help restore confidence and stability in the financial sector. As a result, MBCA’s rating outlook was restored to ‘Stable’. Nevertheless, developments on this topic will be closely monitored by GCR, and an interim review of the bank’s ratings/outlooks will take place if required.
The bank’s fragile operating environment increases the error margin on all forward looking scenarios. This, combined with sovereign linked risk makes an upgrade unlikely at this stage.
A weakened support floor, or worst case, the complete absence of support, will negatively affect the ratings. Furthermore, the ratings will be sensitive to deterioration in asset quality, long-term earnings (on the back of the challenging economic and operating environment) and capital from its current level.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Aug/2007)
Long term: A(ZW); Short term: A1(ZW)
Last rating (May/2013)
Long term: A(ZW); Short term: A1(ZW)
Junior Credit Analyst
Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated 2014)
Zimbabwe Bank Statistical Bulletin (2013)
Previous Rating Reports (up to 2013)
RATING LIMITATIONS AND DISCLAIMERS
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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; 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.
MBCA Bank 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/s has been disclosed to MBCA Bank Limited with no contestation of the rating.
The information received from MBCA Bank Limited and other reliable third parties to accord the credit rating(s) 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, February 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 MBCA Bank Limited’s rating of A(ZW); Outlook Stable.