Johannesburg, 31 May 2017 — 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 ratings are valid until May 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Standard Chartered Bank Zimbabwe Limited (“Stanchart” or “the bank”) based on the following key criteria:
The ratings of Stanchart reflect its very strong capitalisation, sound asset quality, and improved liquidity and earnings, amid challenging operating conditions. The bank’s ratings are underpinned by the profile and commitment of its parent, Standard Chartered Plc.
The bank’s risk-weighted capital adequacy ratio improved to 41.2% at FY16 (FY15: 26.3%) on the back of strong internal capital generation and a decrease in risk-weighted assets, as a result of a balance sheet re-structure. Net loans and advances reduced by 23.4% at FY16, while treasury instruments grew from USD52m at FY15 to USD139.2m at FY16.
Despite a contracting loan book, and challenging macroeconomic conditions which continue to put pressure on consumers and businesses, Stanchart’s asset quality improved. The bank’s gross non-performing loan ratio decreased to 3.6% at FY16, from 5.7% at FY15. Nevertheless, the bank’s increased exposure to government paper of 26.9% of balance sheet assets at FY16 (FY15: 12.7%), given government’s constrained capacity for repayment, heightens credit risk.
Liquidity risk is impacted by market wide liquidity stress, increased appetite for hard currency by retail clients, the absence of a lender of last resort, and Stanchart’s negative cumulative liquidity gap in the less than three months maturity bucket (as is typical of the domestic banking sector). To address these challenges and mitigate liquidity risk, Stanchart maintains an ample liquid asset base, as evidenced by its liquidity ratio of 85.7% at FY16 (FY15: 67.3%), which was above the regulatory minimum of 30% and banking sector average of 61.9%.
Net profit after tax significantly increased (from USD0.4m in FY15 to USD13.4m in FY16) as the bank benefitted from a reduction in group service costs of USD13.1m as a result of a change in regulation. ROaE and ROaA improved to 9.3% (FY15: 0.3%) and 3.0% (FY15: 0.1%) respectively.
An improvement in the operating environment, as well as sustained improvements in the bank’s business and financial profiles, could positively impact the ratings. The bank’s ratings will be sensitive to increased government exposure, significant deterioration in asset quality and/or long-term earnings (exerting extreme pressure on capitalisation), as well as the bank’s inability to meet regulatory capital and/or liquidity requirements.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2000)|
|Long-term: AA(ZW); Short-term: A1(ZW)|
|Last rating (May 2016)|
|Long-term: AA-(ZW); Short-term: A1+(ZW)|
Sector Head: Financial Institutions Ratings
Junior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Zimbabwe Bank Statistical Bulletin (December 2016)
Stanchart rating reports (2000-16)
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 ratings have been disclosed to Standard Chartered Bank Zimbabwe Limited with no contestation of the rating.
The information received from Standard Chartered Bank Zimbabwe Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2016 (plus four years of comparative numbers)
- Unaudited interim financial results as at 31 March 2017
- Latest external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative data
The rating above was solicited by, or on behalf of, Standard Chartered 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.|
|Audit Report||A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|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.|
|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.|
|Corporate Governance||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 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.|
|Customer Deposit||Cash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.|
|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.|
|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.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|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.|
|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.|
|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||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 Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account (including taxes).|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Regulatory Capital||The total of primary, secondary and tertiary capital.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Securities||Various instruments used in the capital market to raise funds.|
|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.|
|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 please click here
GCR affirms Standard Chartered Bank Zimbabwe Limited’s rating of AA-(ZW); Outlook Stable.