Johannesburg, 30 May 2018 — 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 2019.
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 accorded to Stanchart reflect strong capitalisation and liquidity, as well as improved asset quality and earnings. Furthermore, the bank’s ratings factor in technical and financial support from its parent, Standard Chartered Plc.
The bank’s capitalisation remains strong, with a risk weighted capital adequacy ratio of 39.2% at FY17 (FY16: 41.2%) and a Tier 1 capital to risk weighted assets ratio of 29.1% (FY16: 29.4%). Furthermore, the bank’s regulatory capital ratios remain well above requirements. Stability in the capital adequacy ratio was achieved despite the notable rise in the balance sheet, owing in large to high asset quality, coupled with some diversification benefits. Nevertheless, capital growth was limited at 6.6% compared to asset growth of 61.9%, and as a result the bank’s total capital to assets ratio declined to 10.4% from 15.7% at FY16. A continued downward trajectory in this capitalisation metric could exert rating pressure, and as a result capital management represents a key rating consideration over the rating horizon.
The bank’s profitability improved, with net profit before tax rising to USD18.2m at FY17 (FY16: USD17.5m). This was largely driven by 34.6% growth in interest income on the back of increased investment in Treasury Bills to USD267.8m (FY16: USD135.7m) and growth in the loan book of 21.2%. However, a reduction in fee and commission income, coupled with a rise in operating costs, saw the cost to income ratio increase to 71% at FY17 (FY16: 68.7%).
Despite challenging macroeconomic conditions which continue to put pressure on consumers and businesses, Stanchart’s asset quality improved, while its loan book grew. The bank’s gross non-performing loans ratio decreased to 2.7% at FY17, from 3.6% at FY16. Specific provisions also improved to 45.0% at FY17 (FY16: 31.9%).
Like most banks in Zimbabwe, the bank exhibited short-term maturity mismatches in its asset/liability profile (in particular in the critical 0-30 days’ maturity). However, some asset/liability decisions are informed by behavioural patterns as some deposits are sticky. To manage liquidity risk, the bank holds high levels of liquidity supported by a high liquid and trading assets to total short-term funding ratio of 88.2% at FY17 (FY16: 85.1%). The bank maintains its liquidity ratio above the regulatory minimum.
An improvement in the operating environment, as well as significant improvements in the bank’s business and financial profiles, could positively impact the bank’s credit profile. The bank’s ratings will be sensitive to a reduction in the credit quality of liquid assets, a deterioration in asset quality, lowered long-term earnings (exerting high pressure on capitalisation) and the bank’s inability to meet the 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 2017)|
|Long-term: AA-(ZW); Short-term: A1+(ZW)|
Junior Credit Analyst
Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Zimbabwe Bank Statistical Bulletin (December 2017)
Stanchart rating reports (2000-17)
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 ratings 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.
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 ratings.
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 2017 (plus four years of comparative numbers)
- Unaudited interim financial results as at 31 March 2018
- Latest external audit report to management
- Corporate governance and enterprise risk framework
- Industry comparative data
The ratings above were 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.|
|Short-Term||Current; ordinarily less than one year.|
For a detailed glossary of terms please click here
GCR affirms Standard Chartered Bank Zimbabwe Limited’s rating of AA-(ZW); Outlook Stable.