Johannesburg, 01 October 2021 – GCR Ratings (“GCR”) has assigned FBC Bank Limited national scale long and short-term issuer ratings of A-(ZW) and A2(ZW) respectively, with a Stable Outlook.
|Rated Entity||Rating class||Rating scale||Rating||Outlook/Watch|
|FBC Bank Limited||Long Term Issuer||National||A-(ZW)||Stable Outlook|
|Short Term Issuer||National||A2(ZW)|
As the core operating entity, the analysis on FBC Bank Limited (“FBC Bank” or “the bank”) reflects the strengths and weaknesses of the wider FBC Holdings Limited Group (“the Group” or “FBCH”). The ratings take into account the Group’s good business profile supported by good levels of business diversification, increasing franchise strength, and above average market shares. Furthermore, the ratings also reflect adequate capitalisation and appropriate liquidity. The outlook is restrained by the hyperinflationary environment and adverse unquantified ramifications of the on-going COVID-19 pandemic in the context of the regulatory environment.
The business profile is ratings positive. The Group has good levels of business line diversification. Though predominantly banking focused, the Group offers diversified financial services through seven subsidiaries. FBC Bank’s market share of advances and deposits are above industry averages. At June 2021, the bank’s approximate market shares of advances and customer deposits were 15% and 5% respectively, making it the 2nd largest by advances and 5th largest by deposits. The top four banks had combined approximate market shares of 73% and 67%, respectively. Furthermore, GCR positively notes FBC Bank’s classification as a domestic systemically important bank (“D-SIB”). Revenue stability is good and in line with top tier banks. There is a demonstrated track record of consistently sound revenue generation, in line with top tier norms. In the above consideration, GCR takes into account the risk of value erosion of the monetary assets and capital as a result of hyperinflation, and exchange rate devaluation.
As of September 2021, the bank’s core capital was above the ZWL equivalent regulatory target of USD30m by 31 December 2021 at the prevailing interbank rate, an improvement from 2020 levels via organic growth. However, the building society was well below the target, GCR takes note of downward risk associated with the probability of undercapitalized subsidiaries by 31 December 2021 and increasing regulatory nominal USD capital risk. However, the likelihood of FBCH subsidiaries breaching capital requirements is moderately low, considering the Group recapitalisation plan and sufficient capital at Holdings level. In that regard, forecast point to a GCR capital ratio over 20% by 31 December 2021, from 17% at 1H2021 (FY2020: 12%). Effective implementation of the recapitalisation plan may cement the capitalisation assessment. A capital buffer will be required to cushion against future exchange rate fluctuations given that the composition of capital is mixed between USD and ZWL.
The risk profile is a slight ratings positive, supported by sound asset quality metrics. Nonetheless, cognisance is taken of the prevailing challenging operating environment, which poses vulnerability to sector wide asset quality. The bank’s loan book is skewed toward the central bank, with high on-balance sheet concentration. However, this risk is mitigated by the fact that exposure was covered/ guaranteed by USD Treasury Bills linked to a USD line of credit from Afrexim Bank. Given the strong credit profile of Afrexim Bank, credit risk in that regard is lowered significantly. Resultantly, the top 19 exposures of c.32% (excluding a central bank USD loan) at 1Q2021 were below top tier rated peers. Foreign exchange (“FX”) rate risk is moderate in the local market context given the stability on the exchange rate since Q4 2020. However, FX risk is heightened by legacy debt considerations.
The funding structure is broadly in line with top peers, with the bulk coming from on demand customer deposits. This exposed the Group to short-term maturity mismatches in its asset/liability profile (industry wide) leaving it susceptible to external shocks, further exacerbated by the challenging operating environment. Positively, liquidity was good mitigating structural funding risks. At 30 June 2021, the GCR liquid asset coverage of customer deposits was strong at 86% (FY2020: 113%). Furthermore, GCR liquid asset coverage of wholesale funding was also strong at 1.5x (FY2020: 1.4x).
FBC Bank is a wholly owned subsidiary of FBC Holdings Limited a diversified financial organisation listed on the Zimbabwe Stock Exchange. The top shareholders of the Group included: National Social Security Authority (35.1%); Equator Capital Partners LLC (7.14%); Tirent Investments Ltd. (6.48%) among others.
The outlook is stable, balancing our expectation that FBCH will maintain a sound business profile supported by better than peer business diversification. We also expect improvements in capitalisation, a sound risk profile, and adequate levels of liquidity against the turbulent operating environment.
There is limited upside potential over the outlook horizon, given the strained operating environment and just adequate levels of capitalisation. However, positive, or negative ratings movement could follow a change in asset quality or liquidity. Furthermore, negative ratings action may follow should the entity fail to meet capital expectations. National scale ratings reflect relativities to the local Zimbabwean peers only. Given the operating environment there is implied volatility in the ratings.
|Primary analyst||Vimbai Mandebvu||Senior Financial Institutions Analyst|
|Johannesburg, ZA||vimbaim@GCRratings.com||+27 11 784 1771|
|Committee chair||Vinay Nagar||Senior Financial Institutions Analyst|
|Johannesburg, ZA||vinay@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 Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, August 2021|
|GCR Financial Institutions Sector Risk Score, September 2021|
FBC Bank Limited
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Long Term Issuer||Initial/last||National||A-(ZW)||Stable Outlook||September 2021|
|Short Term Issuer||Initial/last||National||A2(ZW)||September 2021|
Risk Score Summary
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|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.|
|Income||Money received, especially on a regular basis, for work or through investments.|
|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.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|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.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|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 Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
Salient Points of Accorded Rating
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entities, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entities, security or financial instrument.
The credit ratings have been disclosed to FBC Bank Limited. The ratings above were solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings.
FBC Bank Limited participated in the rating process via video conference 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 the rated entity and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2020;
- Reviewed interim results as at 30 June 2021;
- Breakdown of facilities; and
- Other related documents.
In our opinion, the national scale credit ratings on Zimbabwean entities are not directly comparable to credit ratings and risk scores within other markets due to implied volatility in the ratings. Due to hyperinflation, high risk of monetary and exchange control policy changes, and significant accounting judgement, creating high likelihood of frequent change on the financial profiles of entities operation therein. Furthermore, outlook statements may fail to capture forward looking trends due to the high volatility in the operating environment. See the latest Jurisdictional Supplement for Criteria, published, available at https://gcrratings.com/criteria/