Johannesburg, 30 Sep 2015 — Global Credit Ratings has affirmed the national scale ratings assigned to Steward Bank Limited of BBB-(ZW) and A3(ZW) in the long term and short term respectively; with the outlook accorded a Stable. The rating(s) are valid until September 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Steward Bank Limited (“Steward Bank” or “the bank”) based on the following key criteria:
The principal factor supporting the ratings of Steward Bank is the strong implied support available from its parent, Econet Wireless Zimbabwe Holdings Limited (“Econet” and/or “the parent”). Econet is Zimbabwe’s largest mobile operator, listed on the Zimbabwean Stock Exchange, with a capital base of USD665m and total assets of USD1.3bn at 28 February 2015. That said, the ratings also capture the bank’s weak, but improving standalone credit profile, and nascent brand relative to other commercial banks in the market.
Operationally, the bank is closely integrated with its parent, while functionally operating as a single entity. Moreover, Steward Bank plays an important strategic role in Econet’s provision of mobile banking services.
Asset quality came under additional stress in F15, following a substantial deterioration in F14. Notably, the increase in delinquencies stemmed mainly from legacy loans, in particular those extended under the previous furniture business model, which ceased as a result of a decision by the board of directors taken in July 2013. The bank’s gross non-performing loan ratio increased to 27.1% at FYE15 (FYE14: 23.0%). However, while GCR believes that the slowing economic environment could pose challenges to Steward Bank’s efforts to improve collections on legacy loans, comfort is derived from the bank’s conservative provisioning policy, with specific provisions covering the entire arrears book at FYE15 and FYE14.
For the past three years, profitability has been constrained by the large (non-earning) furniture business exposure (21.8% of assets at FYE15), high impairment charges and a cumbersome cost structure that has been mainly driven by retrenchment costs. As such, the bank has posted losses for the past three financial years. However, the bank returned to profitability in 4M F16, supported by improved collections on new advances, higher non-interest income (driven by commission earned from its EcoCash mobile-phone based money transfer platform) and a lower cost base.
Despite posting consecutive losses, capitalisation has remained relatively strong on both nominal and risk-adjusted bases. The bank registered a 6.6% growth in total regulatory capital to USD49.9m at FYE15, driven by a reduction in guarantees to insiders and a decline in capital allocated for market and operational risk. Consequently, Steward Bank’s capital adequacy ratio increased to 35.3% at FYE15 (FYE14: 32.8%), also supported by a reduction in risk weighted assets. Given the strong financial support obtainable from Econet, capitalisation is expected to be sustained at solid levels.
Supported by increased funding, while maintaining a conservative lending approach, the bank’s liquidity position improved significantly in F15, with its liquidity ratio remaining in the 50-60% range. In addition, a gap analysis of the bank’s financial asset and liability profile revealed positive cumulative liquidity gaps in all maturity buckets, which minimises liquidity risk.
Upward ratings movement would be contingent on a reversal of profitability and asset quality trends, improved operating conditions, and positive developments in brand recognition and business model. The ratings could come under pressure if there is a further weakening in profitability, asset quality and capitalisation, and any diminution/withdrawal of parental support.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2005)|
|Long term: BB-(ZW); Short term: B(ZW)|
|Last rating (September 2014)|
|Long term: BBB-(ZW); Short term: A3(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
Zimbabwean Bank Statistical Bulletin (June 2015)
Steward Bank rating reports (2005-14)
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.
Steward Bank 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 Steward Bank Limited with no contestation of the rating/s.
Information received from Steward Bank Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results as at 28 February 2015 (and four years of comparative numbers)
- Unaudited interim results at 30 June 2015
- 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
The ratings above were solicited by, or on behalf of, Steward Bank 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 GLOSSARY
|Arrears||An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.|
|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.|
|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.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|Exchange||A standardised marketplace in which different assets are traded.|
|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.|
|Financial Year||The year used for accounting purposes by a company. It can be a calendar year or it can cover a different period, often starting in April, July or October. It can also be referred to as the fiscal year.|
|Guarantee||An undertaking in writing by one person (the guarantor) given to another, usually a bank (the creditor) to be answerable for the debt of a third person (the debtor) to the creditor, upon default of the debtor.|
|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.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|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.|
|Non-Performing Loan||When a borrower is overdue, typically 90+ days in arrears or as defined by the lender, or in the transaction documents.|
|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.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Watch||Indicates that a rating is under review for possible change in the short term and the movement may be either positive or negative.|
|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.|
|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.|
|Stock Exchange||A market with a trading-floor or a screen-based system where members buy and sell securities.|