Johannesburg, 09 Dec 2013 — Global Credit Ratings has downgraded Kingdom Bank Limited’s long term national scale issuer rating to BB-(ZW), with the outlook accorded as Negative. Further, Global Credit Ratings has accorded an initial short term national scale issuer rating of B(ZW) to Kingdom Bank Limited, with the outlook accorded as Negative. The rating(s) are valid until 12/2014.
Global Credit Ratings has accorded the above credit rating(s) on Kingdom Bank based on the following key criteria:
Kingdom Bank Limited (“KBL” or “the bank”), a subsidiary of AfrAsia Kingdom Zimbabwe Limited (“AKZL”), incorporated and domiciled in Zimbabwe, is undergoing a change in ownership that will have an impact on operations and brand profile. That said, franchise value has been eroded significantly of late.
Capital is considered inadequate, regardless of the additional injections which were made, with the capital base weakening by 22.1%, owing to cost erosion and significant loan losses. Nonetheless, the bank’s ultimate parent, AfrAsia Holdings Limited (“AHL”), remains upbeat about its investment despite the country’s fragile economic condition. Looking ahead, the restructuring of the group is expected to pave way for additional capital injections, which should see a strengthening of the balance sheet and the ability to meet the statutory capital requirements.
KBL’s asset quality deteriorated, with the gross non-performing loans ratio increasing to 33.5% as at 30 September 2013 (F11: 26.2%) and, given that scores of companies are reported to be closing down due to the turbulent operating environment, further contraction within key sectors will add pressure to asset quality. However, the bank now follows a policy of selective lending, with improved oversight by the Board.
The bank also experienced a deterioration in profitability, posting a second year of losses. Operating expenses increased amid a once off reduction in staff. Loan losses, in turn, were up 2.6x to cater for the bank’s loan clean-up exercise. Nevertheless, the bank recorded a profit of US$0.4m as at 30 September 2013, a trend which is expected to continue going forward.
The bank exhibits low liquidity, mainly owing to high value withdrawals and the lack of a lender of last resort. However the bank remains upbeat about its ability to recruit stable retail funding, and is hopeful that the economy will restart after the new government announces its policy direction.
Future developments that could lead to a rating upgrade are premised on a combination of an improved credit risk profile, profitability, capital base and funding profile; and sustained growth prospects within the domestic economy. On the other hand negative triggers are founded on rapid loan growth, which could lead to a slide in asset quality, a further decline in the funding profile, earnings profile and capital levels.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jun/2006)|
|Long term: BBB+(ZW); Short term: A2(ZW)|
|Rating watch: Yes|
|Last rating (May/2013)|
|Long term: BB+(ZW)|
|Rating watch: Yes|
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kuzivakwashe Murigo|
|Sector Head: Financial Institution Ratings||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Head: Corporate Ratings|
|+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.
Kingdom Bank 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 and contested by Kingdom Bank Limited, but was maintained, as no new information (not available at the time of the initial committee sitting) was provided by the entity.
The information received from Kingdom Bank Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements for 30 June 2013 (plus three years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, 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.