Johannesburg, 11 Dec 2013 — Global Credit Ratings has upgraded Steward Bank Limited’s long term national scale issuer rating to BBB-(ZW), with the outlook accorded as Stable. Further, Global Credit Ratings has accorded an initial short term national scale issuer rating of A3(ZW) to Steward Bank Limited, with the outlook accorded as Stable. The rating(s) are valid until 12/2014.
Global Credit Ratings has accorded the above credit rating(s) on Steward Bank Limited (prev. TN Bank Ltd) based on the following key criteria:
Steward Bank Limited (“Steward Bank” or “the bank”), formerly known as TN Bank Limited (“TN Bank”), was acquired and rebranded by Econet Wireless Zimbabwe Limited (“Econet”), Zimbabwe’s largest mobile operator, following a cash and share swap deal that saw Econet acquire 100% ownership of the bank during 1QF13. Parallel to the rebranding exercise, the bank ushered in a new and experienced board and senior management team, and plans to leverage from the technology platform presented by the mobile operator. The ratings are underpinned by the strong financial and technical support offered by the bank’s parent company. Econet is listed on the Zimbabwean Stock Exchange (“ZSE”), with equity capital of US$492.9m and assets amounting to over US$1bn as at February 2013.
Financial flexibility is supported by demonstrated parental support, with the bank already exceeding the half year (1HF13), minimum capital threshold of US$50m (placing it amongst the country’s top five banks by capitalisation). However, losses incurred in the period under review have absorbed some of the fresh equity.
Increased stress on the bank’s asset quality in F12, led to the gross non-performing loans (“NPLs”) ratio rising to 14.6% from 3.8% in the prior year, breaching the best practice limit of 5% and just going above the industry average of 13.8%. This upturn came as a result of the 3.8x increased exposure to the manufacturing sector, which has seen a record number of company closures as well as significant legacy loans extended under TN Bank’s furniture financing product model. In response the bank curtailed lending and has focused on bad debt recovery in 2013.
Financial performance remains weak, with the bank still addressing its cost structure and loan quality. That said, the bank’s high cost ratio of 115.9%, which indicates low operating efficiency, deteriorated by a further 4.7x at 30 September 2013, owing to subdued income generation activity (as the bank curtailed lending).
The bank’s liquid assets base was up 6x at end-F13, but remained below the statutory cap. That said, however, liquidity constraints were systemic, due to depositor security concerns and the absence of a lender-of-last resort. Nonetheless, going forward the bank expects to yield funding from the unbanked informal sector under its new EcoCash Save platform.
Future developments that could lead to a rating upgrade include a significant improvement in the earnings profile, prudent lending leading to an improvement in asset quality, and sustained positive growth prospects within the domestic economy. On the other hand, negative rating triggers are premised on additional losses which will impinge capital, any further asset quality stress, and a lag in economic recovery.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2005)|
|Long term: BB-(ZW); Short term: B(ZW)|
|Rating Watch: Yes|
|Last rating (Oct/2012)|
|Long term: BB+(ZW)|
|Primary Analyst||Seocondary Analyst|
|Dirk Greeff||Kuzivakwashe Murigo|
|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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SALIENT FEATURES 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 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.
Steward Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Steward Bank Limited with no contestation of the rating.
The information received from Steward Bank Limited and other reliable third parties to accord the credit rating included the February 2013 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 30 September 2013, as well as its 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.