Johannesburg, 23 Apr 2015 — Global Credit Ratings has affirmed Stanbic Bank Zimbabwe Limited’s national scale ratings of AA-(ZW) and A1+(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until 04/2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Stanbic Bank Zimbabwe Limited (“Stanbic” and/or “the bank”) based on the following key criteria:
The accorded ratings reflect Stanbic’s strong capitalisation and liquidity, conservative credit risk management, improving earnings generation, established franchise and leading market position within the Zimbabwean banking space.
Furthermore, the ratings are underpinned by the implied financial support and demonstrated technical support provided by the bank’s parent, Standard Bank Group Limited (“SBGL” and/or “the group”).
The rating outlook considers Stanbic’s healthy position from which to develop its business profitably and conservatively, within the context of Zimbabwe’s negative consumer confidence, debt affordability and credit trends.
At FYE14, the bank had the third highest capital base in the industry, with declared core capital of USD74.6m, against the prescribed minimum level of USD25m. Considering its current capital standing and strong earnings track record, Stanbic plans to comply with the USD100m capital threshold (extended to 2020) by FYE17, through organic earnings growth. The bank’s risk-weighted capital adequacy ratio (“RWCAR”) remained comfortably above the regulatory minimum (12%) at 23.5%.
In spite of tightening its credit criteria, Stanbic has not been immune to the market-wide decline in credit quality, although this has been far more muted than the broader market experience. The bank’s cautious approach to credit, as well as some negative impairment experience in F14, resulted in the gross impairment ratio rising from 4.7% to 5.7% between F13 and F14. However, conservative provisioning has meant that impaired loan coverage exceeds 100% in both of these financial years, implying that future capital and earnings are well insulated against potential rising non-performing loan (“NPL”) levels in future.
To mitigate the risks associated with the composition/concentration of its funding base (which is predominately made up of volatile demand deposits), absence of an effective interbank market, and no lender of last resort in Zimbabwe, the bank maintains a highly liquid balance sheet and sufficient liquidity buffers.
The bank’s financial performance remained resilient in F14 (bottom line profit increased by 13.1% to USD20.7m) despite a reduction in the loan book and a challenging operating environment.
Continued positive earnings growth/diversification, maintenance of generous capital and liquidity buffers, as well as conservatism in credit granting, management and provisioning, could bolster ratings (subject to an improved operating environment). A weakened shareholder support floor will negatively affect the ratings. Furthermore, the ratings may be impacted by a deterioration in credit metrics (NPL levels and write-offs), long-term earnings generation and/or capitalisation.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2004)
Long term: AA-(ZW); Short term: A1+(ZW)
Last rating (Apr/2014)
Long term: AA-(ZW); Short term: A1+(ZW)
Sector Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2015
Zimbabwe Bank Statistical Bulletin (2014)
Stanbic Rating Reports (2004-14)
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.
Stanbic Bank Zimbabwe 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 Stanbic Bank Zimbabwe Limited with no contestation of the rating.
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.
The information received from Stanbic Bank Zimbabwe Limited and other reliable third parties to accord the credit rating included the December 2014 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, 2014 budgeted financial statements, January 2015 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Balance Sheet||Also known as a 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.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Corporate Governance||Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt 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.|
|Default||Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.|
|Demand Deposit||A deposit of funds that can be withdrawn without any advance notice, or “on demand”.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, 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.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Financial Year||The year used for accounting purposes by a company. It can be a calendar year or it can cover a different period, often starting in April, July or October. It can also be referred to as the fiscal year.|
|Franchise||Business or banking franchise; a bank’s business.|
|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.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|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.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|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.|
|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.|
|National Scale Rating||The national scale 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.|
|Non-Performing Loan||When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents.|
|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.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|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.|
|Write-off||The total reduction in the value of an asset.|