Johannesburg, 29 May 2015 — Global Credit Ratings has affirmed the national scale ratings assigned to Standard Chartered Bank Zimbabwe Limited of AA-(ZW) and A1+(ZW) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until May/2016
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Standard Chartered Bank Zimbabwe Limited (“Stanchart” and/or “the bank”) based on the following key criteria:
Stanchart’s ratings reflect its profile as one of the largest local commercial banks, with a strong franchise, sound liquidity, satisfactory asset quality, good profitability and robust capitalisation. Furthermore, the bank’s ratings factor in the technical and financial support obtainable from its parent, Standard Chartered Plc.
The bank registered the highest capital adequacy ratio (27.1%) of the largest commercial banks in the market at FYE14, as it maintained a strong capital cushion, buoyed by high retained earnings and measured loan expansion. With regard to complying with the statutory required core capital of USD100m by 2020 (given the recent lower earnings generation and high remittances), management indicated that the bank’s capital planning strategy will enable it to meet the statutory required capital target through a combination of organic growth and dividend payout adjustments.
Non-performing loans (“NPLs”) grew by 9.2% to USD13.3m in F14, after rising sharply by 171.5% in F13. The bank’s gross NPL ratio declined slightly to 6.2% at FYE14 (FYE13: 6.4%), after recording moderate growth in loans and some write offs. GCR notes that Stanchart’s gross NPL ratio was well below the industry average of 15.9% at FYE14, and that the bank is prudent in its classification of NPLs, recognising all loans that are overdue between 30 and 90 days as NPLs, as opposed to the norm of only categorising loans that are over 90 days overdue as NPLs.
Although operating income increased by 2.7% in F14 (driven by a higher net interest margin), following a 1.9% decline in F13, the bank’s earnings declined by 30.4% to USD6.7m, impacted by higher credit costs and increased operating expenses (mainly stemming from retrenchment costs). Consequently, profitability as measured by return on assets and equity declined to 1.6% and 9.1% respectively in F14 (F13: 2.4% and 13.7%).
Reflective of the short term maturity profile of the bank’s deposit book (as is typical of the domestic banking system) and it’s longer dated advances portfolio, negative cumulative liquidity gaps were displayed across all maturity buckets at FYE14. However, the liquidity risk presented by the aforementioned asset and liability mismatch, together with inadequate market liquidity, is mitigated by the bank’s ample liquid asset base, and its high liquidity ratio (50.6% at FYE14).
Despite recording growth in retail deposits, Stanchart experienced volatility in its corporate deposit base, due to the country’s fragile economic climate and the nature of wholesale funding. GCR will closely monitor trends in corporate deposit flows, given the potential negative effect that significant withdrawals might have on the bank’s funding composition and cost structure.
An improvement in the operating environment, as well as sustained improvements in profitability and asset quality, could positively impact the ratings. The ratings will be sensitive to a further deterioration in asset quality and long-term earnings (exerting pressure on capitalisation), as well as adverse developments in indigenisation policies or their application, and funding instability.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2000)|
|Long term: AA-(ZW); Short term: A1+(ZW)|
|Last rating (May/2014)|
|Long term: AA-(ZW); Short term: A1+(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 2015
Zimbabwe Bank Statistical Bulletin (December 2014)
Stanchart rating reports (2000-14)
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.
Standard Chartered 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 rating/s has been disclosed to Standard Chartered Bank Zimbabwe Limited with no contestation of the rating/s.
Information received from Standard Chartered Bank Zimbabwe Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results as at 31 December 2014
- Unaudited interim results at 31 March 2015
- 5 years of comparative numbers
- Budgeted financial statements for 2015
- Latest internal and/or external 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, the rated client, 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 GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||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 (i.e. being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|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.|
|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.|
|Dividend||The portion of a company’s after-tax earnings that is distributed to shareholders.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Exchange||A standardised marketplace in which different assets are traded.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Franchise||Business or banking franchise; a bank’s business.|
|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.|
|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.|
|Margin||The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|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.|
|Net Interest Margin||Net interest margin is the net interest income divided by average interest earning assets.|
|Non-Performing Loan||When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents.|
|NPL Ratio||The ratio of non-performing loans and advances to total gross loans and advances, expressed as a percentage.|
|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.|
|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.|
|Return on Assets||A ratio of the attributable profits for the last 12 months to total assets (fixed and current) for the same period, expressed as a percentage. It measures how effectively a company generates earnings from its assets.|
|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.|