Johannesburg, 29 Nov 2013 — Global Credit Ratings has today affirmed the long term national scale and accorded the short term national scale issuer ratings assigned to ZB Building Society of BBB-(ZW) and A3(ZW) respectively; with the ratings placed on Rating Watch. The rating(s) are valid until 5/2014.
Global Credit Ratings has accorded the above credit rating(s) on ZB Building Society based on the following key criteria:
ZB Building Society Limited (“ZBBS” or “the Society”), a subsidiary of ZB Financial Holdings Ltd (“ZBFHL” or “the Group”), has robust risk management systems and structures, all which have provided stability in the face of a difficult operating environment. Looking ahead, the Society stands to gain synergistic advantages from integrating its operations with those of the Group’s banking arrangement. That said, the Society’s ratings are conditional and will be withdrawn once the merger has been completed.
Capital is considered inadequate, despite the combined rise in minority interests and retained earnings. However, the total capital adequacy ratio remained well above the statutory minimum, in spite of the modest increase in the volume of risk weighted assets. Going forward the pending merger is expected to see the Society and Group meet the required capital threshold for a single entity.
At the interim, the Society recorded no non-performing loans on its mortgage advances, while bad debts on its personal loans book came in higher at 1.5% of total advances (below the industry average of 13.8%). However, the 4.7x increase in impairment charges in F12 points to an expectation of bad debts trickling down over the coming months on the personal loans book.
Earnings deteriorated mainly due to a surge in impairment charges, and faster growth in operating expenditure relative to operating income, resulting in an increased cost ratio of 84.8% (F11: 67.6%). However, at the interim (September 2013), this position was reversed with the Society posting an 88.9% increase in pre-tax profits.
Liquidity risk is mitigated by the Society’s large liquid asset portfolio of US$14.7m, equating to 117.4% of short-term funding (surpassing the regulatory floor of 20%). Further, this position is strengthened by the positive cumulative liquidity gap which goes beyond 3 months. Going forward, the Society plans to tap into the informal sector, as an avenue for deposits, and ultimately balance sheet growth.
The “rating watch” reflects the Society’s proposed merger with ZB Bank Limited (“ZBBL”), which is believed to be imminent.
Future developments that could lead to a rating upgrade are premised upon sustained growth prospects within the domestic economy, the positive impact of the planned merger, an improvement in profitability and an enhanced capital base. On the other hand, negative rating triggers are founded on a decline in the earnings profile, asset quality problems and a deterioration of the macro-economic outlook.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Dec/2002)|
|Long term: BBB(ZW); Short term: A2(ZW)|
|Outlook: Rating watch|
|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 Building Society 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/s has been disclosed to ZB Building Society with no contestation of the rating.
The information received from ZB Building Society Limited and other reliable third parties to accord the credit rating included the December 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, 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.