Johannesburg, 30 September 2016 — 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 as Stable. The ratings are valid until September 2017.
SUMMARY RATING RATIONALE
The ratings of Steward Bank Limited (“Steward Bank” or “the bank”) are underpinned by strong implied financial support available from its parent, Econet Wireless Zimbabwe Limited (“Econet” or “the parent”). Econet is Zimbabwe’s largest provider of telecommunication services, listed on the Zimbabwean Stock Exchange, with equity and balance sheet assets of USD661.9m and USD1196.9m respectively at FYE16. That said, the ratings also capture the bank’s strong liquidity, adequate capitalisation, as well as improving profitability and asset quality metrics.
The bank’s gross non-performing loan (“NPL”) ratio declined to 15.5% at FYE16 (FYE15: 36.3%), due to recoveries but mainly supported by write-offs. Although this reflects an improvement from the previous year, asset quality remains a concern, with special mention loans accounting for 57.5% of gross loans at 30 June 2016 (FYE16: 60.6%). Furthermore, the bank still displayed significant exposure concentration to the manufacturing sector (46.5% at FYE16) which has come under pressure on the back of a challenging operating environment. Steward Bank maintained its relatively conservative provision policy, with specific provisions covering 44.6% of customer NPLs at FYE16 (FYE15: 58.4%).
After posting losses from F13 to F15 (mainly as a result of large impairment charges from the non-earning furniture business exposure, low interest bearing assets and high operating expenditure), the bank registered a net profit after tax of USD5.4m in F16 (F15: USD8.3m loss). This was supported by higher non-interest income (from higher transactional volumes) and lower operating costs (mainly attributed to reduced staff costs). Overall, ROaE and ROaA in F16 increased to 8.2% (F15: negative 12.3%) and 3.2% (F15: negative 5.5%) respectively.
The bank maintained a strong capital cushion at FYE16, despite registering a decrease in both its Tier 1 and total regulatory capital (due to increased exposure to insiders), supported by a reduction in risk-weighted assets. Steward Bank’s Tier 1 and capital adequacy ratio improved to 30.9% (FYE15: 29.9%) and 36.8% (FYE15: 35.3%) at FYE16 respectively. GCR positively notes that both ratios remained at the top end of the industry and well above the statutory minima of 8% and 12% respectively.
Liquidity risk is presented by market wide liquidity stress, increased appetite for hard currency by clients, the absence of a lender of last resort and Steward Bank’s negative cumulative liquidity gaps in the short-term maturity buckets (as is typical of the domestic banking sector). Direct funding and liquidity risks are ameliorated by the significant liquidity buffers, evidenced by the bank’s high liquidity ratio which remained above the regulatory level of 30% in F16 ranging between 55-80% (F15: 50-57%).
A sustained positive trend in earnings and asset quality, as well as growth in market position and brand recognition, could lead to upward ratings movement. Furthermore, the ratings maybe negatively impacted by deterioration in profitability, credit quality, capitalisation and/or operating conditions, and any diminution/withdrawal of parental support.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (September 2005)|
|Long term: BB-(ZW); Short term: B(ZW)|
|Rating Watch: Yes|
|Last rating (September 2015)|
|Long term: BBB-(ZW); Short term: A3(ZW)|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
Zimbabwe Bank Statistical Bulletin (June 2016)
Steward Bank Limited rating reports (2005-15)
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.
Steward Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Steward Bank Limited with no contestation of the rating.
The information received from Steward Bank Limited and other reliable third parties to accord the credit ratings included:
• Audited financial results as at 28 February 2016 (and four years of comparative numbers)
• Unaudited interim results at 30 June 2016
• Budgeted financial statements for 2017
• Latest internal and/or external audit report to management
• A breakdown of facilities available and related counterparties
• Corporate governance and enterprise risk framework
The rating above was 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||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.|
|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.|
|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.|
|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.|
|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 Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|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.|
|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.|
|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.|
|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.|
|Stock Exchange||A market with a trading-floor or a screen-based system where members buy and sell securities.|
For a detailed glossary of terms utilised in this announcement please click here