Announcements Financial Institutions Rating Alerts

GCR reviews seven Zimbabwean financial institutions under the new criteria

Rating Action    

Johannesburg, 8th July 2019 – GCR Ratings (“GCR”) has reviewed the ratings on seven Zimbabwean financial institutions under the recently released Criteria for Rating Financial Institutions, May 2019.

On May 22, 2019 GCR announced that it had released new criteria for all banks and bank-like entities. This methodology is titled Criteria for Rating Financial Institutions. As a result, all affected ratings were placed ‘Under Criteria Observation’.

Subsequently, GCR has finalised the first wave of reviews under the new methodology. As a result, the ratings below have been removed from ‘Under Criteria Observation’ and the ratings revised or affirmed in line with the new methodology.

The following financial institutions were included in this review:

  1. Agricultural Bank of Zimbabwe Limited (‘Agribank’): long and short-term Zimbabwean national scale ratings affirmed at BB-(ZW)/B(ZW). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.
  • African Banking Corporation of Zimbabwe Limited (‘BancABC Zim’): long and short-term Zimbabwean national scale ratings affirmed at BB+(zw)/B(zw). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.
  • CBZ Bank Limited (‘CBZ Bank’): long and short-term Zimbabwean national scale ratings revised to A+(zw)/A1(zw) from A(zw)/A1-(zw). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.
  • FBC Bank Limited (‘FBC Bank’): long and short-term Zimbabwean national scale ratings affirmed at BBB+(zw)/A2(zw). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.
  • FBC Building Society (‘FBC BS’): long and short-term Zimbabwean national scale ratings affirmed at BBB-(zw)/A3(zw). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.
  • Nedbank Zimbabwe Limited: long and short-term Zimbabwean national scale ratings affirmed at A(zw)/A1(zw). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.
  • Stanbic Bank Zimbabwe Limited: long and short-term Zimbabwean national scale ratings revised to AA(zw)/A1+(zw) from AA-(zw)/A1+(zw). At the same time, the ratings have been taken off Negative Ratings Watch and the outlook accorded as Stable.

Rating Rationale

The ratings on the seven reviewed financial institutions reflect the following:

Agricultural Bank of Zimbabwe Limited

The BB-(zw)/B(zw) national scale ratings on Agricultural Bank of Zimbabwe Limited (‘Agribank’) balance the bank’s integral role in the government’s plans to develop agricultural infrastructure with its modest market position and franchise strength. The bank’s market share of customer deposits was 2.1% at FY18. Agribank’s ratings also reflect the bank’s high GCR capital ratio of 29%, structurally weaker funding, sufficient liquidity (GCR liquid assets to short term funding of 53%) and a weak, but improving risk profile. The material foreign currency risk from lines of credits of c.$20m has been diffused by the adoption of the foreign currency denominated debt by the government. The bank’s ratings also reflect the strength and continued support from the shareholder (ultimately the Zimbabwean government).

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities with the sufficient capitalisation, the support of the shareholder due to the banks mandate. We also factor in the bank being able to successfully pass on USD liabilities to the Central Bank, at a rate of Zimbabwean $ 1 to US$1.

African Banking Corporation of Zimbabwe Limited

The BB+(zw)/B(zw) national scale ratings on African Banking Corporation of Zimbabwe Limited (‘BancABC Zim’), reflect the bank’s modest market position and franchise strength in the Zimbabwean banking industry. At FY18, the bank ranked 10th with a 4% claim to total industry deposits. The bank’s franchise strength was undermined by a somewhat volatile revenue profile over the last 5 years. BancABC Zim’s ratings also reflect a strong capital position (GCR Capital Ratio of 36%) which is offset by a structurally weaker funding profile, just sufficient liquidity and a moderate risk position. The bank’s nonperforming loan ratio of around 9.5% at 31 Dec 2018, is weaker than the rated peer group. At the same time, the top twenty loans accounted for 75% of total loans and 1.9x total capital. The bank’s rating materially benefits from expected and on-going financial and operational support from the parent company.

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities with the robust capitalisation of the bank and ongoing shareholder support. We also factor in the bank being able to successfully pass on USD liabilities to the Central Bank, at a rate of Zimbabwean $1 to US$1.

CBZ Bank Limited

CBZ Bank Limited’s (‘CBZ Bank’) national scale ratings of A+(zw)/A1(zw) are based on CBZ Holdings Group analysis. CBZ Bank is the core operating entity of the CBZ Holdings Group. The ratings reflect the groups stronger than average business profile given its broad financial services offering, a good franchise and leading market share of approximately 18% of assets and 19.5% of deposits. We believe the group’s exposure to, ownership by, and role for the government is both a positive and negative factor for the ratings. We also factor in strong capitalisation offset by a relatively weak risk position. Funding and liquidity are considered to adequate. The funding structure is broadly average, however, with a high exposure to public sector deposits at c.36%. Liquidity is considered adequate, supported by a GCR liquid assets to customer deposits ratio of 51%.

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities with the role of the government in the bank, high capitalisation and franchise value of the group. We also factor in the group being able to successfully pass on USD liabilities to the Central Bank, at a rate of Zimbabwean $1 to US$1.

FBC Bank Limited

The BBB+(zw)/A2(zw) national scale ratings on FBC Bank Limited (‘FBC Bank’), are based on FBC Holdings Limited analysis. FBC Bank is the core operating entity of the FBC Holdings Group, contributing 60% to the holding company’s total revenue. The ratings reflect the groups adequate but rapidly growing market position and franchise strength in Zimbabwe, and better than industry average business diversification. The bank ranked 6th by deposit book size with 7.4% market share at FY18, a 64% growth over the previous year. The ratings also factor an adequate group capital position, with a GCR total capital ratio of around 24% at Dec. 31st 2018.  We also consider risk position to be adequate, reflecting non-performing loans broadly better than the market. Funding and liquidity are considered to be neutral for the ratings.

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities with the high levels of capitalisation and currently good financial performance. We also factor in the bank being able to successfully pass on external USD liabilities to the Central Bank, at a rate of Zimbabwean $1to US$1.  Once the current turmoil regarding currency and economic volatility has settled, we may increase the rating if the bank maintains its currently positive financial profile trends.

FBC Building Society

The BBB-(zw)/A3(zw) national scale ratings on FBC Building Society (‘FBC BS’) are restrained by the entity’s relatively modest franchise and a more concentrated product offering. The building society claimed 1.3% of industry deposits at FY18. The ratings also recognise the building society’s GCR capital ratio of 85%, relatively high non-performing loan ratio of 6.1% but historically low credit losses and a solid funding and liquidity profile. We also factor in an element of group support (from the FBC Holdings Group) into the national ratings, reflecting the shared branding, services and history of support.

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities, with currently modest levels of credit losses and high levels of capitalisation.

Nedbank Zimbabwe Limited

The A(zw)/A1(zw) national scale ratings on Nedbank Zimbabwe Limited (‘Nedbank Zimbabwe’), are restrained by the bank’s relatively weaker than average market position evidenced by a low market share of c3% in deposits and assets. Nedbank Zimbabwe offers vanilla universal banking with limited diversification. However, the bank’s franchise value is considered to be somewhat stronger than its market share as demonstrated by its strong (low) cost of funds. The capitalisation of the bank is considered to be high, confirmed by a GCR capital ratio of 26%. The ratings also factor in a sound risk position, better than average structural funding and liquidity. Lastly, the ratings benefit from ongoing support and integration of the bank with its ultimate parent, the Johannesburg based Nedbank Group Limited.

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities with the robust risk management and franchise value of the bank.

Stanbic Bank Zimbabwe Ltd

The AA(zw)/A1+(zw) national scale ratings on Stanbic Bank Zimbabwe Limited (‘Stanbic Zimbabwe’), reflects the bank’s strong market position and franchise in Zimbabwe, with a market share of c.15% in total deposits. We believe the bank benefits from an ongoing flight to quality from the local private sector, best demonstrated by its market leading low cost of funds. The ratings also factor in a GCR capital ratio of 19%, solid risk position (non-performing loans of 1.7% at 31 Dec. 2018 and conservative reserving) and structurally superior funding and liquidity. Lastly, the ratings benefit from ongoing support and integration of the bank with its ultimate parent, the Standard Bank Group.

The Stable outlook balances the ongoing volatility in the local economy, currency fluctuations and long-term political vulnerabilities with the robust risk management and franchise value of the bank.

Analytical Contacts

Primary analyst Vimbai Muhwati Financial Institutions Analyst
Johannesburg, ZA     vimbaim@GCRratings.com +27 11 784 1771
     
Secondary analyst Kudzanai Samanga Financial Institutions Associate
Johannesburg, ZA     kudzanais@GCRratings.com +27 11 784 1771
     
Committee chair Matthew Pirnie Sector Head: — Financial Institutions
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, June 2019  
GCR Financial Institutions Sector Risk Score, July 2019
 

Ratings History

Agricultural Bank of Zimbabwe Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National BBB-(zw) Negative August 2006
  Last National BB-(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A3(zw) N/A August 2006
  Last National B(zw) Rating Watch Negative May 2019

African Banking Corporation of Zimbabwe Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National BBB-(zw) Stable December 2004
  Last National BB+(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A3(zw) N/A December 2004
  Last National B(zw) Rating Watch Negative May 2019

CBZ Bank Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National A-(zw) Stable September 2000
  Last National A(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A2(zw) N/A September 2000
  Last National A1-(zw) Rating Watch Negative May 2019

FBC Bank Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National BBB+(zw) Ratings Watch June 2006
  Last National BBB+(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A2(zw) N/A June 2006
  Last National A2(zw) Rating Watch Negative May 2019

FBC Building Society

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National BBB-(zw) Stable December 2005
  Last National BBB-(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A3(zw) N/A December 2005
  Last National A3(zw) Rating Watch Negative May 2019

Nedbank Zimbabwe Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National A(zw) Stable August 2017
  Last National A(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A1(zw) N/A August 2017
  Last National A1(zw) Rating Watch Negative May 2019

Stanbic Bank Zimbabwe Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National AA-(zw) Stable June 2004
  Last National AA-(zw) Rating Watch Negative May 2019
Issuer Short Term Initial National A1+(zw) N/A June 2004
  Last National A1+(zw) Rating Watch Negative May 2019

RISK SCORE SUMMARY

Risk score Agribank BancABC CBZ Bank FBC Bank FBC BS Nedbank Stanbic
               
Operating environment 1 1 1 1 1 1 1
Country risk score 0 0 0 0 0 0 0
Sector risk score 1 1 1 1 1 1 1
             
Business profile -1 -2 2 1 -2 -1 2
Competitive positon -1 -2 2 1 -2 -1 2
Management and governance 0 0 0 0 0 0 0
               
Financial profile 0 0 2 1 3 3 1
Capital and Leverage 2 2 3 1 3 2 0
Risk 0 -1 -1 0 0 0 0
Funding structure and Liquidity -2 -1 0 -0 0 1 1
               
Comparative profile 1 3 -1 0 0 1 1
Group support 0 3 0 0 0 1 1
Government support 1 0 0 0 0 0 0
Peer analysis 0 0 -1 0 0 0 0
Total Score 1 2 4 3 2 4 5
National Scale Rating BB-/B BB+/B A+/A1 BBB+/A2 BBB-/A3 A/A1 AA/A1+

Glossary

Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
Capital The sum of money that is invested to generate proceeds.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
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. 
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Market An assessment of the property value, with the value being compared to similar properties in the area.
National Scale Rating National scale ratings measure creditworthiness relative to issuers and issues within one country.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Performing An obligation that performs according to its contractual obligations.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
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 Current; ordinarily less than one year.

SALIENT POINTS 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 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 entities listed above. The rating above was solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings.

The entities participated in the rating process via face-to-face 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 rating included:

  • Audited financial results as at 31 December 2018;
  • Management accounts for 2019;
  • Budgeted financial statements for 2019;
  • Latest internal and/or external audit report to management;
  • A breakdown of facilities available and related counterparties; and
  • Industry comparative data.


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