Rating Action
Johannesburg, 08 July 2021 – GCR Ratings (“GCR”) has upgraded CBZ Bank Limited’s national scale long term issuer rating from A+(ZW) to AA-(ZW). The short-term national scale issuer rating was also upgraded from A1(ZW) to A1+(ZW). The outlook is Stable.
| Rated Entity | Rating class | Rating scale | Rating | Outlook |
| CBZ Bank Limited | Long Term issuer | National | AA-(ZW) | Stable Outlook |
| Short Term issuer | National | A1+(ZW) |
Rating Rationale
As the core operating entity, the analysis on CBZ Bank Limited (“CBZ Bank”) reflects the strengths and weaknesses of the wider CBZ Holdings Limited Group (“the Group”). The upgrade is based on improvements in the business and risk profiles. The ratings take into account the Group’s good business profile supported by strong levels of business diversification, franchise strength, and above average market shares. Furthermore, the ratings also reflect healthy capitalisation, a relatively stable funding structure and appropriate liquidity. The outlook is restrained by the hyperinflationary environment, exacerbated by the adverse unquantified ramifications of the on-going COVID-19 pandemic and monetary policy inconsistency.
The business profile is ratings positive. The group has very good levels of business diversification. Though predominantly banking focused, the Group offers diversified financial services through nine subsidiaries including CBZ Bank. We expect additional business and revenue diversification via correspondent banking channels. In the 3rd quarter of 2020, the U.S Treasury Department cleared CBZ Bank of paying a potential USD385m penalty for a long outstanding Office of Foreign Assets Control (“OFAC”) issue. The bank had two correspondent banking partners prior to that but now has 15 (as at June 2021). CBZ Bank was the largest bank in Zimbabwe measured by its market shares of industry deposits and advances at 31 December 2020 and 31 March 2021. The bank also has one of the largest distribution networks. At December 2020, CBZ Bank had loans and deposit market shares of c.30%. The top four banks had combined market shares of 66.8% and 67.7%, respectively. Furthermore, GCR positively notes CBZ Bank’s classification as a domestic systemically important bank (“D-SIB”). Revenue stability is good and in line with top tiers. 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, volatile monetary policy and exchange rate devaluation.
Capitalisation is adequate supported by a GCR Capital ratio of 29.8% at 31 December 2020. Furthermore, in May 2021, the bank’s regulatory core capital was above the December 2021 requirement of USD30m using the prevailing interbank rate. We expect pressure on profitability to persist balancing constrained earnings capacity, the impact of hyperinflation on the net monetary asset balance sheet offset partly by aggressive growth in earning assets and foreign currency income. Given the adverse operating conditions, reserve coverage was adequate.
The risk profile improved during the review period albeit still weaker than top tier rated peers. Since the Group’s legacy asset (legacy debt) was recognised in 2019, 62% had either been repaid or transferred to the central bank as at May 2021. Though the non-performing (“NPL”) ratio was within industry average (0.4% at 31 March 2021, (FY20: 0.3%)), concentration risk is considered very high. At 31 March 2021, the bank had a 59% sectorial exposure to the agriculture sector, top 20 loan exposure was 81% of which 53% was to a sister company (CBZ Agro Yield Private Limited). Furthermore, the bank has higher than average asset exposure to the Government of Zimbabwe (“Government”), primarily in the form of securities and guarantees. While Government default on local currency obligations is unlikely, there is downside risk associated with volatile monetary policy. In the local market context, foreign exchange risk was moderately high mitigated by exchange rate stability. In March 2021, CBZ Bank had a currency net open position (“NOP”) of c.37% of the capital base (including legacies), excluding legacies, the NOP is negative.
Funding and liquidity was ratings neutral taking into account a stable funding structure and adequate liquidity. The funding structure is broadly comparable to top tier banks in Zimbabwe, with demand customer deposits comprising the bulk of funding and short-term maturity mismatches in its asset/liability profile. Single name concentration is considered high, with top 20 depositors contributing c.63% to total deposits at 31 March 2021. Therefore, the bank remains susceptible to external shocks, further exacerbated by the challenging operating environment. Positively, local currency liquidity was good mitigating structural funding risks. At 31 December 2020, the GCR liquid asset coverage of customer deposits was strong at 97%.
CBZ Bank is a wholly owned subsidiary of CBZ Holdings Limited a diversified financial organisation listed on the Zimbabwe Stock Exchange. The shareholding of the Group on 31 May 2021 was: Akribos Wealth Managers Nominees (25.14%), Government of Zimbabwe (21.05%), Libyan Foreign Bank (18.48%) and National Social Security Authority (“NSSA”) (18.15%). The rest of the shareholders own less than 2% each.
Outlook Statement
The outlook is stable, balancing our expectation that CBZ Bank will maintain a sound business and financial profile supported by above average business line diversification, sound internal capital generation, sustained servicing of legacies and adequate levels of liquidity against the turbulent operating environment.
Rating Triggers
National scale ratings reflect relativities to the local Zimbabwean peers only. Given the operating environment there is implied volatility in the ratings. Positive or negative ratings movement could follow a change in capitalisation, asset quality or local currency liquidity. Furthermore, given the high counterparty risk to the government, ratings movement may be impacted by changes to the sovereign risk profile.
Analytical Contacts
| Primary analyst | Vimbai Muhwati | Financial Institutions Analyst |
| Johannesburg, ZA | VimbaiM@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 Scales, Symbols & Definitions, May 2019 |
| GCR Country Risk Scores, June 2020 |
| GCR Financial Institutions Sector Risk Score, June 2020 |
| Jurisdictional Supplement for Criteria, July 2020 |
Ratings History
CBZ Bank Limited
Risk Score Summary
| Rating Components & Factors | Risk Scores |
| Operating environment | 1.00 |
| Country risk score | 0.00 |
| Sector risk score | 1.00 |
| Business profile | 2.25 |
| Competitive position | 2.25 |
| Management and governance | 0.00 |
| Financial profile | 1.50 |
| Capital and Leverage | 2.00 |
| Risk | (0.50) |
| Funding and Liquidity | 0.00 |
| Comparative profile | 0.00 |
| Group support | 0.00 |
| Government support | 0.00 |
| Peer analysis | 0.00 |
| Total Score | 4.75 |
Glossary
| 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 |
| 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. |
| 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 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 CBZ Bank Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
CBZ 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 CBZ Bank Limited and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2020
- Unaudited management accounts as at 31 May 2021
- Breakdown of facilities
- Banking sector information and Industry comparative data
- Other related documents.
Due to severe foreign currency shortages, hyperinflation and significant monetary and exchange control policy changes over the last 12-18 months in our opinion, the national scale credit ratings on Zimbabwean entities are not directly comparable to credit ratings and risk scores within other markets. Furthermore, outlook statements may fail to capture forward looking trends due to the extreme volatility in the operating environment and audited opinions. See the latest Jurisdictional Supplement for Criteria, published July 2020.
