Johannesburg, 28 April 2016 — 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 April 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Stanbic Bank Zimbabwe Limited (“Stanbic” or “the bank”) based on the following key criteria:
The 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, risk management and technical support provided by the bank’s parent, Standard Bank Group Limited.
Stanbic increased its regulatory capital base by 8% to USD93.1m at FYE15 through organic growth, after declaring a USD17.5m dividend. As a result of the bank’s growth in risk weighted assets (“RWA”) year-on-year (largely from lending activities), total and Tier I capital adequacy ratios declined marginally to 19.8% and 22.9% respectively at FYE15 (FYE14: 20.4% and 23.5%). Nonetheless both ratios remain well above the regulatory requirements of 8% and 12% respectively, providing Stanbic with ample capacity for asset growth and an adequate cushion for loss absorption.
Stringent underwriting standards and rigorous post-disbursement monitoring have translated into asset quality that is amongst the best in the sector. The bank’s gross non-performing loan (“NPL”) ratio declined by 120 basis points to 4.5% at FYE15, supported by enhanced collections and recoveries. Specific provisioning coverage stood at 47.2% at FYE15 (FYE14: 64.1%), with the bank expecting additional recoveries on some of its delinquent loans.
Despite the adverse external operating environment, Stanbic’s profitability metrics remained sound and at the top end of the sector. The bank posted a 15.6% increase in net income, and ROaE and ROaA of 28.2% and 4.1% respectively in F15 (F14: 28.0% and 4.0%). This was supported by growth in lending activities, stable net interest margin, growth/retention of core transactional income, low impairment charges and cost containment.
Stanbic continues to build a robust, solvent and liquid balance sheet that is well suited to sustainability in the prevailing negative operating conditions. Liquidity risk for the bank stems mainly from a concentrated funding base, the negative short-term liquidity gaps (due to the systemic short-dated nature of deposits), and the challenges faced in sufficiently meeting customers’ international payment obligations owing to the RBZ’s inability to fund Nostro accounts from real time gross settlements (“RTGS”). To address this, the bank continues to maintain sound liquidity buffers, evidenced by its liquidity ratio which has stood above 60% over the past couple of years (against a regulatory minimum of 30%). In addition, the bank has moved ahead to internally implement the Basel III Liquidity Coverage Ratio, which was calculated at 182% at 31 January 2016 against a requirement of 100%.
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 (June 2004)|
|Long-term: AA-(ZW); Short-term: A1+(ZW)|
|Last rating (April 2015)|
|Long-term: AA-(ZW); Short-term: A1+(ZW)|
|Primary Analyst||Committee Chairperson|
|Kuzivakwashe Murigo||Jennifer Mwerenga|
|Credit Analyst||Senior Analyst|
|(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 (December 2015)
Stanbic rating reports (2004-15)
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.
Stanbic Bank Zimbabwe 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 Stanbic Bank Zimbabwe Limited with no contestation of the ratings.
Information received from Stanbic Bank Zimbabwe 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)
- 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
- Industry comparative data
The ratings above were solicited by, or on behalf of Stanbic Bank Zimbabwe 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.|
|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.|
|Customer Deposit||Cash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.|
|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.|
|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||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.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account (including taxes).|
|Retained Earnings||Earnings not paid out as dividends by a company. Retained earnings are typically reinvested back into the business and are an important component of shareholders’ equity.|
|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 Stanbic Bank Zimbabwe Limited’s rating of AA-(ZW); Outlook Stable.