Announcements Financial Institutions Rating Alerts

GCR affirms the BBB(ZW)/A3(ZW) ratings of Steward Bank Limited

Rating Action

Johannesburg, 13 September 2019 – GCR Ratings (‘GCR’) has affirmed the long and short-term Zimbabwean national scale ratings of Steward Bank Limited (‘Steward Bank’) at BBB(zw)/A3(zw) respectively. At the same time, the ratings have been taken off Negative ratings watch and the outlook accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Steward Bank Limited Long term issuer National BBB(ZW) Stable Outlook
Short term issuer National A3(ZW)

On May 22, 2019 GCR announced that it had released new criteria for all banks and bank-like entities, titled Criteria for Rating Financial Institutions. As a result, the ratings were placed “Under Criteria Observation”. Subsequently, GCR has finalised the review under the new methodology. As a result, the ratings have been removed from ‘Under Criteria Observation’.

Rating Rationale

The BBB(zw)/A3(zw) national scale ratings on Steward Bank, reflect the bank’s modest business profile, supported by an increasing market share of deposits and average franchise strength demonstrated by cost of funds of 0.5% at 28 February 2019. The ratings also take into account strong capitalisation offset by a relatively weak risk position, and high funding concentrations countered by good liquidity.

Leveraging on its competitive advantage in digital technology, the bank grew its deposit base by 1.2x in 2019. Excluding related party deposits which contributed 42% to total deposits at 28 February 2019, the bank had a modest market share or c.4.1%. However, GCR notes business stability may be negatively affected by the turnaround of key personnel, change in ownership and perceived shareholder influence. The bank had a low c.1.5% market share of banking sector loans and advances at FY19.

Capital and earnings are positive to the ratings. The very high GCR Capital ratio of 51.8% is moderated by the leverage ratio of 9.7%. GCR believes the low risk weighted assets overstate the capital strength of the bank relative to peers. Earnings are broadly supportive of capital adequacy with the bank recording a return on assets of 2.6% in 2019, supported largely by risk free non-interest income and loss interest income from treasury bills.

Overall, the risk position is moderately weak, primarily as a result of moderate to high operational risk. We cannot discount the reoccurrence of capacity challenges the bank faced during the period under review on both its core banking platform and accounting systems. Credit risk is sound, due to low appetite to lend considering the very small market share of loans. The gross NPL ratio decreased to 5% at 28 Feb 19 from 12% at FY18.

Funding and liquidity is negative ratings factor. Though considered stable, the funding profile is very concentrated. Group exposures contributed 42.7% to customer deposits at FY19 (FY18: 54.4%), there was also a material concentration of deposits in the transport and telecommunications industry constituting 83.9% at 28 February 2019 (2018: 67.9%) of total deposits. The significant funding concentration is off-set somewhat by high liquidity supported by GCR broad liquid assets coverage of short-term wholesale funding of 206x at FY19 (FY18: 191.2x).

Given the recent listing of Cassava SmarTech Zimbabwe Limited, group support is not factored into the ratings. Although we consider the willingness to support to be high, the capacity to support is yet to be demonstrated.

Outlook Statement

The Stable outlook balances the risks from significant funding concentrations in a highly volatile economy with the good earnings, liquidity and strong capital of the bank. We also factor in the ongoing currency fluctuations and long-term political vulnerabilities.

Rating Triggers

A negative rating action may follow a deterioration in financial leverage and the risk profile. The ratings may improve following evidence of tangible shareholder support and material funding diversification. However, due to the currently strained operating environment, we consider there to be limited upward ratings potential over the ratings horizon.

Analytical Contacts

Primary analyst Vimbai Muhwati Financial Institutions Analyst
Johannesburg, ZA vimbaim@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: — Financial Institutions
Johannesburg, ZA matthewp@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Financial Institutions Sector Risk Score, July 2019

Ratings History

Steward Bank Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National BB-(zw) Rating Watch September 2005
Last National BBB(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National B(zw) N/A September 2005
Last National A3(zw) Rating Watch Negative May 2019

Risk Score Summary

Risk score 4
Operating environment 1
Country risk score 0
Sector risk score 1
Business profile 0
Competitive positon 0
Management and governance 0
Financial profile 2
Capital and Leverage 3
Risk -0.5
Funding structure and Liquidity -0.5
Comparative profile 0
Group support 0
Peer analysis 0

Glossary

Capitalisation The provision of capital for a company, or the conversion of income or assets into capital.
Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
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.
Market An assessment of the property value, with the value being compared to similar properties in the area.
National Scale Rating National scale ratings measure creditworthiness relative to issuers and issues within one country.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Current; ordinarily less than one year.

Salient Points Of Accorded Ratings

GCR affirms that a.) no part of the ratings were 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.

The credit ratings have been disclosed to Steward Bank Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

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 information received from Steward Bank Limited and other reliable third parties to accord the credit rating included:

  • Audited financial results as at 28 February 2019;
  • Budgeted financial statements for 2020;
  • Latest external auditor’s report to management;
  • A breakdown of facilities available and related counterparties 2019; and
  • Industry comparative data.


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