Rating Action
Johannesburg, 02 July 2021 – GCR Ratings (“GCR”) has affirmed national scale long-term issuer and short-term issuer ratings of AA(ZW) and A1+(ZW) respectively, with a Stable Outlook.
| Rated Entity | Rating class | Rating scale | Rating | Outlook |
| Stanbic Bank Zimbabwe Limited | Long Term issuer | National | AA(ZW) | Stable Outlook |
| Short Term issuer | National | A1+(ZW) |
Rating Rationale
The ratings accorded to Stanbic Bank Zimbabwe Limited (“Stanbic” or “the bank”) reflect the bank’s resilient financial profile within a challenging operating environment. This is underpinned by a strong competitive positioning, healthy capitalisation, relatively stable funding structure and adequate liquidity. Furthermore, the ratings are complemented by implicit/explicit group support from the bank’s parent, Standard Bank Group Limited (“SBGL” or “the group”). The outlook is restrained by the hyperinflationary environment, adverse unquantified ramifications of the on-going COVID-19 pandemic and monetary policy inconsistency.
The business profile is a rating positive. Stanbic is one of the leading banks in Zimbabwe with a high market share across loans and deposits and has a strong franchise within the local market. The bank offers a diverse range of products in the local market, distributed through a well established local franchise. Furthermore, GCR positively notes Stanbic’s classification as a domestic systemically important bank (“D-SIB”). The bank’s operations are restricted to Zimbabwe given its position within the broader SBGL. Revenue stability is good an in line with top tiers. There is a demonstrated track record of consistently sound revenue generation, in line with top tier norms. In the above consideration, GCR takes into account the risk of value erosion of the monetary assets and capital as a result of hyperinflation and exchange rate devaluation, balancing the bank’s value preservation strategies supported by a significant foreign currency balance sheet.
We consider the bank to be adequately capitalised, supported by a GCR capital ratio of 19.8% at 31 December 2020. Furthermore, in May 2021 the bank’s regulatory core capital was above the December 2021 requirement of USD30m using the prevailing interbank rate. Pressures for exchange rate depreciation due to widening forex supply gap could exert pressure on maintaining the core capital above the USD30m threshold. Notable contribution towards capital growth continue to come from non-interest income primarily foreign exchange. We expect pressure on profitability to persist balancing the impact of hyperinflation on the net monetary asset balance sheet offset by growth in foreign currency income. Given the adverse operating conditions, reserve coverage was adequate.
The risk profile is a neutral ratings factor. Credit losses of 3% at December 2020 were within top tier industry range but this mostly reflect stage 2 transitions from the weak operating environment. Stanbic’s has a very low stage 3 or gross non-performing loan ratio of below 0.1%, however this strength is partially offset by moderately high single name concentrations (top 20 was 41% of gross advances in March 2021) and a high proportion of unsecured lending (over 90%). The bank has maintained a loan portfolio of good quality exhibiting low delinquencies over the review period, supported by stringent underwriting standards and rigorous post-disbursement monitoring, despite a highly volatile operating environment. That said, there is some credit risk due to impact of harsh operating conditions and COVID-19 on affected borrowers. Foreign exchange risk is moderate, in the local context, the exchange rate has been stable since Q42020 and Stanbic ran a currency net open position, to the equivalent of 19% of shareholder funds in Q12021.
The funding and liquidity assessment is a ratings positive considering a relatively stable funding structure and adequate liquidity. The bank is exposed to the same structural funding as most banks in Zimbabwe, namely demand customer deposits (mostly corporate) and short-term maturity mismatches in its asset/liability profile. In March 2021, c.56% of deposits were in foreign currency and the top 20 c.32% of total deposits. Therefore, the bank remains susceptible to external shocks, further exacerbated by the challenging operating environment. To manage liquidity risk, the bank holds high levels of liquidity mitigating structural funding risks. While local currency liquidity is tight (due to stringent regulatory monitoring), foreign currency liquidity is appropriate. At FY2020, FX liquid asset coverage of the FX funding base was very good at 113%. Furthermore, GCR liquid asset coverage of customer deposits was adequate at 77%.
The ratings benefit from ongoing support and integration of the bank with its ultimate parent, the Standard Bank Group. Stanbic Zimbabwe is a wholly owned subsidiary of Standard Bank Group Limited. Although not a material asset or revenue contributor, there is evidence of technical and integration support from the parent.
Outlook Statement
The outlook is Stable, balancing our expectation that Stanbic Zimbabwe will maintain a sound financial profile supported by low asset quality risk, sound internal capital generation and adequate levels of liquidity against the turbulent operating environment.
Rating Triggers
National scale ratings reflect relativities to the local Zimbabwean peers only. Given the adverse 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 | Financial Institutions Analyst |
| Johannesburg, ZA | VimbaiM@GCRratings.com | +27 11 784 1771 |
| Committee chair | Matthew Pirnie | Group Head of Ratings |
| Johannesburg, ZA | MatthewP@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 Scale, Symbols & Definitions, May 2019 |
| GCR Country Risk Scores, June 2021 |
| GCR Financial Institutions Sector Risk Scores, June 2021 |
| Jurisdictional Supplement for Criteria, July 2020 |
Ratings History
Stanbic 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 | 2.00 |
| Competitive position | 2.00 |
| Management and governance | 0.00 |
| Financial profile | 1.00 |
| Capital and Leverage | 0.00 |
| Risk | 0.00 |
| Funding and Liquidity | 1.00 |
| Comparative profile | 1.00 |
| Group support | 1.00 |
| Government support | 0.00 |
| Peer analysis | 0.00 |
| Total Score | 5.00 |
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 Stanbic 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.
Stanbic 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 Stanbic 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.