Johannesburg, 26 August 2016 — Global Credit Ratings has affirmed the national scale ratings assigned to NMB Bank Limited of BB+(ZW) and B(ZW) in the long-term and short-term respectively; with the outlook accorded as Stable. The ratings are valid until August 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to NMB Bank Limited (“NMB”, “the Bank”) based on the following key criteria:
The ratings of NMB reflect the challenges being faced in arresting asset quality deterioration in the prevailing weak macroeconomic environment. The ratings, however, factor in improved profitability, the Bank’s strong brand in the domestic market, as well as the financial and technical shareholder support available from reputable development finance institutions (“DFIs”), which maintain shareholdings through NMBZ Holdings Limited.
The Bank reported a reduction in its gross non-performing loan (“NPL”) ratio to 13.2% at FYE15 (FYE14: 17.7%), due to increased focus on collections, but mainly aided by loan growth, write-offs and a disposal of a USD1m NPL to the Zimbabwe Asset Management Company (“ZAMCO1”). Although reflecting an improvement from the previous year, asset quality remains a concern, with special mention loans (defined as 30-60 days past due) increasing by 46.9% to account for 51.0% of gross loans at FYE15 (FYE14: 38.9%). GCR believes that the slow growth environment could pose challenges to NMB’s bid to improve asset quality.
NMB maintained healthy capital ratios in F15, supported by earnings retention and measured loan growth. Its Tier 1 and total capital adequacy ratios remained well above the minimum regulatory requirements and were maintained at 16.0% and 19.3% respectively at FYE15. However, considering the high level of past due loans, NMB’s capital remains vulnerable to further loan quality deterioration.
Operating income grew by a high 25.2% to USD44.3m in F15, driven by improved net interest income on the back of loan growth, and significant increase in non-interest income (supported by higher transaction revenue, disposal of investment properties and recovery of bad debts). While impairment charges increased by 89.3% due to portfolio provisions, operating expenditure declined by 3.9%, benefiting from lower staff costs. On balance, pre-tax profit rose 2.3x to USD8.0m, supporting an increase in ROaA and ROaE to 1.8% (F14: 0.6%) and 11.8% (F14: 3.9%) in F15, respectively.
Liquidity risk has become more prominent due to the market wide liquidity stress, increased appetite for hard currency by retail clients and the absence of a lender of last resort. This is exacerbated by the negative liquidity gaps in the Bank’s assets and liabilities profile (typical of the domestic banking system), and the wholesale nature of the majority of its deposits, which render it susceptible to external shocks. However, NMB has maintained its liquidity ratio above the statutory minimum of 30% for the majority of the period under review. In addition, the Bank’s liquidity position is supported by access to credit lines, which have fairly long grace periods, thereby providing a float.
An upward movement in the Bank’s ratings is contingent on a substantial and sustained improvement in asset quality, profit and the operating environment. NMB’s ratings could be negatively impacted by additional asset quality stress (which may exert downward pressure on earnings and capital), a weakened support floor, and a further deterioration in operating conditions.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (December 2005)|
|Long-term: BBB-(ZW); Short-term: A3(ZW)|
|Last rating (August 2015)|
|Long-term: BB+(ZW) ; Short-term: B(ZW)|
|Primary Analyst||Committee Chairperson|
|Kuzivakwashe Murigo||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Zimbabwe Bank Statistical Bulletin (June 2016)
NMB rating reports (2005-15)
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.
NMB Bank Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to NMB Bank Limited with no contestation of the ratings.
Information received from NMB Bank Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2015 (and four years of comparative numbers)
- Unaudited interim results at 30 June 2016
- Budgeted financial statements for 2016
- Latest internal and/or external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
The ratings above were solicited by, or on behalf of, NMB Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS SECTOR GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Bad Debt||An amount owed by a debtor that is unlikely to be paid due, for example, to a company going into liquidation. There are various technical definitions of what constitutes a bad debt, depending on accounting conventions, regulatory treatment and the individual entity’s own provisioning and write-off policies.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|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.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|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.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|National Scale Rating||Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Past Due||Any note or other time instrument of indebtedness that has not been paid on the due date.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
For a detailed glossary of terms utilised in this announcement please click here
GCR affirms NMB Bank Limited’s rating of BB+(ZW); Outlook Stable.