Johannesburg, 4th November 2019 – GCR Ratings (‘GCR’) has affirmed Atlas Mara Zambia’s (“the bank”) long and short term Zambian national scale ratings of CCC(ZM)/C(ZM). The Ratings Watch Evolving on both ratings has been maintained.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Atlas Mara Zambia||Issuer Long Term||National||CCC(ZM)||Rating Watch Evolving|
|Issuer Short Term||National||C(ZM)||Rating Watch Evolving|
On May 22, 2019 GCR announced that it had released new criteria for all banks and bank-like entities. This methodology is 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’ and the ratings revised in line with the new methodology.
Atlas Mara Zambia’s national scale long term issuer rating of CCC(ZM) is restrained by low levels of capitalisation, modest risk and moderate franchise strength. The ratings are supported by the current group support and adequate funding & liquidity. The Rating Watch Evolving reflects our uncertainty about the state of Atlas Mara Zambia post the impending changes at its parent group.
The parent (ABC Holding Limited), intends to do a share swap including Atlas Mara Zambia along with two other sister banks, for an equity stake in Kenya-based Equity Group Holdings Plc (”EGH”). Whilst we believe there is a fairly strong chance of the deal happening, we do not know the exact timing or details regarding the transaction. However, we do factor in continued support by the group for the Zambian entity until the deal is complete. Post the equity swap, Atlas Mara Zambia expects to restructure its balance sheet, especially the funding profile with resolution to a costly line of credit with the Overseas Private Investment Corporation, which they expect to improve the bank’s financial profile.
Atlas Mara Zambia’s company profile is a negative ratings factor. The bank’s franchise strength is viewed to be modest, reflecting its mid-tier position, with a market share of assets (7.6%) at FY18. Despite the bank’s wide distribution network in the country, the mobilisation of low-cost deposits has been slow and cost of funds remain high. Revenue diversification is modest while the stability has generally been good over the last 5 years, although this has failed to filter through to the bank’s bottom line over this period.
The bank’s capital position is a significant negative factor for the rating. At FY18, the GCR Capital Ratio was 10%, deteriorating from c.17% one year earlier. The bank’s weak earnings exacerbate this assessment, due to negative internal capital generation. Over the past two years, core earnings have accounted for -4.4% of nominal GCR capital. Positively, the loan loss coverage ratios are considered adequate at 112.9% of stage 3 loans as at FY18, up from 47.7% at FY17.
The bank’s risk profile is considered to be negative for the rating. The group’s non-performing loans (“NPL”) ratio decreased from 18.2% at FY17 to 14.3% at FY18, but have since deteriorated as of June 2019 to c.18%. Positively, the bank appears to recover impaired loans well, as credit losses have been low over the past 5 years, although the IFRS9 impact would seem to somewhat oppose this point. Loan collateral does appear to be high, with collateral coverage 2.8x of the largest NPLs. However, the quality of the collateral cover ought to be viewed in light of depressed participation on the local property market due to affordability and liquidity concerns. Positively, loan concentrations are modest, with top 20 loans constituting c.54.9% of the loan book, and foreign currency lending appears to be moderate in comparison to the local market.
Atlas Mara Zambia’s funding and liquidity profile is considered to be neutral to the rating. The bank had a GCR Stable Funds ratio of 103% at FY18, with core deposits constituting 82% of total funding and the rest being sourced from the market. With Government of Zambia increasing the quantum and price of borrowings, local currency cost of funds for the bank resultantly increased from 3.6% at Jan FY18 to c.9.3% at July FY19. Deposit book concentrations are moderate, with the top 20 depositors being c.45% of total deposits at July FY19. The bank’s liquidity profile is good considering the tightening liquidity in the operating environment, liquid assets to total deposits at FY18 was c.42%.
The Rating Watch Evolving reflects the anticipated changing nature of the wider group, through the expected equity swap transaction with EGH.
The rating may improve on the back of improvement in the bank’s financial profile, most likely from a material improvement in the capitalisation, funding structure and credit quality. The rating may be lowered if we observe material deterioration in prior mentioned factors.
|Primary analyst||Nyasha Chikwengo||Financial Institutions Analyst|
|Johannesburg, ZA||nyashac@GCRratings.com||+27 11 784 1771|
|Secondary analyst||Samanga Kudzanai||Financial Institutions Associate|
|Johannesburg, ZA||kudzanais@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|
|ABC Holdings Limited and BancABC Botswana ratings placed on Rating Watch Evolving, November 2019|
|GCR downgrades the national scale ratings of Atlas Mara Zambia; Evolving Outlook, February 2019|
Atlas Mara Zambia
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Issuer Long Term||Initial||National||BBB-(ZM)||Positive||June 2004|
|Last||National||CCC(ZM)||Rating Watch Evolving||February 2019|
|Issuer Short Term||Initial||National||A3(ZM)||N/A||June 2004|
|Last||National||C(ZM)||Rating Watch Evolving||February 2019|
Risk Score Summary
|Country risk score||1.75|
|Sector risk score||2.00|
|Management and governance||0.00|
|Capital and Leverage||-4.00|
|Funding structure and Liquidity||0.00|
|National Scale Rating||CCC/C|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|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.|
|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.|
|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.|
Salient Points 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.
The credit rating has been disclosed to Atlas Mara Zambia. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Atlas Mara Zambia 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 Atlas Mara Zambia and other reliable third parties to accord the credit rating included:
- Audited financial results of Atlas Mara Zambia as at 31 December 2018;
- Management accounts as at 31 July 2019;
- Budgeted financial statements for 2019;
- Latest internal and/or external audit report to management;
- A breakdown of facilities available and related counterparties; and
- Industry comparative data.