Johannesburg, 11 Dec 2013 — Global Credit Ratings has affirmed ZB Bank Limited’s long term national scale issuer rating of BBB+(ZW), with the rating placed on Rating Watch. Further, Global Credit Ratings has accorded an initial short term national scale issuer rating of A2(ZW) to ZB Bank Limited, with the rating placed on Rating Watch. The rating(s) are valid until 05/2014.
Global Credit Ratings has accorded the above credit rating(s) on ZB Bank based on the following key criteria:
ZB Bank Limited (“ZBBL” or “the bank”) is a wholly owned subsidiary of ZB Financial Holdings Limited (“ZBFHL” or “the group”). ZBFHL is listed on the Zimbabwean Stock Exchange (“ZSE”), with the National Social Security Authority (“NSSA”) and the Government holding 37.8% and 24.7% of its issued share capital respectively. ZBFHL had a capital base of US$65.5m and total assets amounting to US$326.7m as at F12.
Core capital amounted to US$31.6m as at F12, supported by the 23% growth in reserves (exceeding the statutory minimum of US$25m). Nevertheless, the bank is planning to meet future capital level requirements through a merger with its sister company, ZB Building Society (“ZBBS”).
Gross non-performing loans (“NPLs”) more than doubled to 14.4% (up from 5.1% as at F11), breaching the best practice cap of 5%. Net NPLs amounted to 10.8% of capital as at F12. The deterioration in asset quality was on the back of corporate failures, due to a turbulent operating environment. In response to the potential for further decline, amid the challenging economic conditions, the bank has taken measures to identify and monitor vulnerable borrowers and explore restructuring solutions for viable businesses.
Notwithstanding a difficult operating environment and regulatory changes, ZBBL recorded a pre-tax profit of US$6.3m for F12. The cost ratio increased to 85% in F12 from 70.5% in F11, while non-interest income growth was subdued, due to the capping of lending rates and bank charges following the Memorandum of Understanding (“MoU”) between banks and the central bank.
Liquidity risk is heightened by the absence of a lender of last resort, restrained interbank activity, high composition of demand deposits and the limited activity in the secondary market. Nevertheless, the bank maintained a sound liquidity position in F12, with a liquidity ratio of 32.9% (exceeding the regulatory floor of 30%). Going forward, the bank is planning to tap into the informal sector to grow its deposit base and underwriting capacity.
The “rating watch status” is based on the expected merger with ZBBS, the uncertain capitalisation regulations going forward and the current operating environment.
Future developments that could lead to an upward movement in the rating are premised on an improved capital base, a sustained profitability trend and improved asset quality. On the other hand, a downward movement in the rating will be founded on any further stress in asset quality, downward pressure on the bank’s earnings and a further deterioration in the macro-economic conditions.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2007)|
|Long term: A(ZW); Short term: A1-(ZW)|
|Rating Watch: Yes|
|Last rating (Nov/2012)|
|Long term: BBB+(ZW)|
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kuzivakwashe Murigo|
|Sector Head: Financial Institution Ratings||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
ZB Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to ZB Bank Limited with no contestation of the rating.
The information received from ZB Bank Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus three years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements for 2013, unaudited year to date management accounts for 30 September 2013, as well as its corporate governance and enterprise risk framework.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.