Global Credit Ratings has accorded the above credit rating(s) on Agricultural Bank of Zimbabwe Limited based on the following key criteria:
Agricultural Bank of Zimbabwe Limited’s (“Agribank” or “the bank”) ratings have historically been underpinned by the demonstrated support of its prime shareholder, the Zimbabwean government. Supporting agriculture is strategically important for the government, and Agribank plays a key role in facilitating the funding for this sector. Given the inherent risks, agricultural exposures among the commercial banks are generally low (albeit, a slight shift is visible). To date, the government has appointed financial and legal advisors to spearhead the privatisation of the bank (with a strategic investor/s to acquire a 49% stake). The process slowed due to recent political and economic events, but is scheduled for completion by 1QF14.
Despite a US$11m capital injection in F12, the bank’s core capital of US$20.4m was well below the first step-up requirement of US$25m at end-December 2012. It further declined to US$17.1m at end-August 2013, largely due to accumulated income losses.
Following rapid loan growth in F11 (cognisance must be taken of the general lag in arrears that succeeds fast loan expansion), the bank’s asset quality indicators weakened, further impaired by its exposure to three large corporate entities (making up 61% of non-performing loans), to which additional provisions were raised.
The bank’s performance was weighed down by high loan loss provisions, passive lending inflows and a high cost structure, bringing about an after-tax loss of US$5.6m at FYE12. Its turnaround is largely dependent on additional capitalisation, the availability of cheaper funding and writing better business.
The bank’s liquidity risk position raises some concern, demonstrated by its liquid asset ratio of 18% (against a prudential minimum of 30%).
Sustained business growth, along with the privatisation may enhance the bank’s financial flexibility; this could have a positive effect on the ratings. However, given the level of uncertainty (political and economic) in the market, an upgrade is unlikely in the near term.
The ratings will be sensitive to further deterioration in the asset quality trend, long-term earnings (on the back of an uncertain political and economic environment) and/or the bank’s inability to meet the regulatory capital and liquidity requirements.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2006)|
|Long term: BBB-(ZW); Short term: A3(ZW)|
|Last rating (Oct/2012)|
|Long term: BBB(ZW)|
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kurt Boere|
|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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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.
Agricultural Bank of Zimbabwe Limited 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 Agricultural Bank of Zimbabwe Limited with no contestation of the rating.
The information received from Agricultural Bank of Zimbabwe 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 31 August 2013, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, industry comparative data and regulatory framework, and a breakdown of facilities available and related counterparties.
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.
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