Johannesburg, 3 August 2021 – GCR Ratings (“GCR”) has assigned Standard Chartered Bank of Zimbabwe Limited national scale long and short-term issuer ratings of AA(ZW)/A1+(ZW), with outlook accorded as Positive.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Standard Chartered Bank of Zimbabwe Limited||Issuer Long Term||National||AA(ZW)||Positive Outlook|
|Issuer Short Term||National||A1+(ZW)|
The national scale ratings assigned to Standard Chartered Bank of Zimbabwe Limited (‘Stanchart Zimbabwe’, ‘the bank’) reflect the franchise strength of its parent company, Standard Chartered Plc, balanced with modest scale and diversification. The bank ratings are also supported by strong capitalisation, good asset quality, strong funding structure, robust liquidity, and external support from the parent company. The outlook is positive, as we expect the bank’s stage 2 credit losses to normalise to historical levels and foreign currency receivable gap to narrow.
Stanchart Zimbabwe is a corporate and retail banking franchise that has a solid history as the oldest bank in the country. The bank has average market position, reflected by its share of industry assets and deposits of 5% and 6% at FY20 respectively, ranking 8th and 6th out of 19 banks, in those categories. Nonetheless, the core strength of the bank lies in its franchise as a subsidiary of the international group Stanchart Plc. That said, the bank has a relatively stronger funding structure versus peers and coupled with long standing relationships with some of the top tier local corporates, it has one of the lowest cost of funds in the market. In addition, the bank leverages on international platforms of its parent and this has supported its journey to become a digital bank that is operationally efficient. Track record of revenue stability is good, supported by fairly diversified lines of business and customers.
Capitalisation is ratings positive. Tier 1 capital ratio of c.22% as at FY20 is moderately strong and we expect the ratio to hold above 20% over the next 12-18 months balancing the volatility in earnings coming from the frequent repricing of monetary assets/liabilities required in a hyperinflationary environment and improvement in cost of risk due to migration of borrowers into lower risk buckets. We think that the current cost of risk is reflective of the bank’s conservative loan loss reserving as the bulk of the provisions relate to macro environment risks. The bank currently holds nominal capital of USD22m equivalent and we believe monthly internal capital generation is adequate to enable the bank to reach the regulatory capital requirement of USD30m by year end. Core earnings are good, with the bank returning between 5% and 6% of assets over the last 2 years. We expect earnings to trend broadly in line with sector average, balancing the lower net interest income versus top tier peers and lower contribution of market sensitive income to operating revenues.
The bank’s risk position is ratings neutral for now, balancing above peer average credit losses of c.6% at FY20 and very low impairments of c.0% over the same period. We expect stage 2 credit losses to normalise to historical levels below 2% supported by its top exposures being top tier corporates/financial institutions that have relatively resilient balance sheets to weather the current shocks (top 20 exposures accounts for 57% of the loan book at FY20). In addition, c.56% of the loan book is trade finance which we consider more secure given the self-liquidating nature of facilities. Retail Banking (primarily a provider of unsecured consumer loans) is the sole contributor to the non-performing book. Limited foreign currency lending also benefits the bank’s risk position.
Funding and liquidity is ratings positive. Stanchart Zimbabwe has one of the strongest funding structures in the market, supported by top tier depositors and the very low cost of funds. We believe franchise strength plays a key role in mobilising deposits from these corporates as the bank is viewed to be safe heaven with occasional flight to safety during periods of heightened risk (this includes clearing FX international payments). Liquidity on the other hand is kept at robust levels, reflected in the liquid assets coverage of customer deposits of over 75% at FY20. Deposit concentration is also moderate with top 20 depositors accounting for c.38% of total deposits over the same period. In addition, rollover risk is mitigated given some of the deposits are asset backed. Overall, we think there is scope for improving the bank’s funding and liquidity profile if the FX funding receivable gap is narrowed which would indicate a stronger FX liquidity position.
We have factored in a modest uplift to the rating for external support from the parent company. This uplift is underpinned by the bank’s shared branding with Stanchart Plc group, integrated systems, financial support (capital/liquidity) but moderated for the bank’s immaterial contribution to group revenues and assets.
The outlook is positive, factoring our expectations for credit losses to normalise to historical levels below 2% and the FX funding receivable gap to narrow.
An upgrade may result from lower than anticipated credit losses, FX liquidity gap narrowing and/or strengthening in capitalisation. The downside to ratings is limited, although higher than anticipated credit losses, weakening capitalisation metrics, and increased volatility in earnings could result in a negative rating migration.
|Primary analyst||Simbarake Chimutanda||Financial Institutions Analyst|
|Johannesburg, ZA||SimbarakeC@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|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, July 2021|
|GCR Financial Institutions Sector Risk Score, June 2021|
Standard Chartered Bank of Zimbabwe Limited
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long term issuer||Initial/last||National||AA(ZW)||Positive||August 2021|
|Short term issuer||Initial/last||National||A1+(ZW)||—||August 2021|
Risk score summary
|Rating Components & Factors||Risk scores|
|Country risk score||0.00|
|Sector risk score||1.00|
|Management and governance||0.00|
|Capital and Leverage||1.75|
|Funding and Liquidity||1.00|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|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.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|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.|
|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.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings was 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 the rated entity.
The ratings of the following entities were solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings.
Standard Chartered Bank of Zimbabwe Limited participated in the rating process via virtual 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 entities and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2020;
- Latest internal and/or external audit report to management;
- A breakdown of facilities available and related counterparties; and
- Industry comparative data.