Johannesburg, 03 Oct 2013 — Global Credit Ratings has affirmed the long term national scale and accorded the short term national scale issuer ratings assigned to NMB Bank of BBB-(ZW) and A3(ZW) respectively; with the outlook accorded as Negative. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on NMB Bank based on the following key criteria:
The ratings are supported by NMB Bank Limited’s (“NMB” or “the bank”) strong brand recognition, robust shareholder base, as well as its established and growing franchise value within the corporate and high net-worth individual banking space.
From an organisational perspective, the bank’s parent, NMBZ Holdings Limited (“NMBZ” or “the group”), managed to attract new foreign investment/funding (in the form of equity and credit lines), which is positive, given recent political and economic uncertainties.
Driven by the growth in retained earnings and the injection of fresh capital, the bank’s capital adequacy strengthened, with its Tier 1 ratio improving to 15.1% at 1HF13, well above the regulatory minimum of 8%. However, core capital (US$35m) was still below the minimum requirement of US$50m at end-June 2013. Considering that the bank has reached the 49% foreign ownership limit, it will seek offshore credit lines and grow retained earnings in a bid to meet the remaining capital thresholds.
The bank’s aggressive loan drive in 2013, coupled with its legacy loan issues (lending post dollarisation), saw asset quality deteriorate rapidly, with non-performing loans (“NPL’s”) escalating to 22.8% of gross loans at 1HF13 (calling for a tightening of the bank’s loan monitoring and recovery systems).
Despite the turbulent domestic environment and the introduction of state policies to discourage exorbitant charges in the sector, the bank posted positive results, with net profit after tax up 78.7% to US$7.6m. The performance was driven by improved cost controls (cost ratio down to 59.5%) and a larger loan book (supporting growth of 22.2% in interest income).
Although the funding profile has improved, the bank’s reliance on short dated funding (systematic to the industry) remains a concern; nevertheless, liquidity risk is mitigated by adequate liquid asset cover (mainly balances with the central bank) equating to 37% of short term liabilities (meeting the regulatory floor of 30%).
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 deterioration in the asset quality trend, long-term earnings (on the back of an uncertain political and economic environment) and/or the bank’s inability to meet the remaining staggered capital thresholds.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Dec/2005)|
|Long term: BBB-(ZW); Short term: A3(ZW)|
|Last rating (Nov/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|
|Regional Sector Head: Insurance|
|+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.
NMB Bank 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 NMB Bank with no contestation of the rating.
The information received from NMB Bank 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.