Global Credit Ratings places the ratings of Zimbabwean financial institutions on Negative Rating Watch
Johannesburg, 26 October 2018 – Global Credit Ratings (“GCR”) has placed the national scale ratings of Zimbabwean financial institutions on Negative Rating Watch.
The Negative Rating Watch placement follows the monetary and fiscal policy reforms announcement made under the Transitional Stabilisation Programme by the relevant authorities on the 5th of October 2018, which we expect to have a broad negative impact on the economy and the banking sector. We hope to resolve the negative ratings watch within a 3-6 month period, once we have a clearer view of the impact of the below.
The government, via the Ministry of Finance, announced an increase of transactional tax on RTGS transactions from a flat USD0.05 per transaction to an USD0.02 per dollar of every transaction above USD10 only and will be capped at USD10,000 for transactions above USD500,000. This was aimed to finance the country’s budget deficit, which sits at USD1.3bn, nearly 5x above initial budget. Further to this, the Reserve Bank of Zimbabwe announced a separation of bank accounts into local RTGS foreign currency accounts (FCA) and NOSTRO FCAs in a bid to protect foreign currency earners from the severe foreign currency shortages in the country. The above developments were negatively received by the market and sparked a huge discount trade in the parallel markets between the RTGS and USD, hoarding of basic commodities, flight to shelter on the stock exchange or in fixed assets, and some retailers refusing to accept local RTGS for transactions opting rather for forex or temporarily shutting down.
Despite the above, the Zimbabwean government continue to insist on the parity of the local RTGS to the USD or the NOSTRO FCA balance, despite the fact that one cannot transfer from the local RTGS to the NOSTRO FCA. At the date of publication the government accepts this parity for all government and quasi-government related transactions, which has created a deep triangular arbitrage to the private sector and parallel currency market. At the time of publication, we cannot confirm the nature or existence of the USD500m facility agreement between the government and Afreximbank, meant to backstop the parity of the USD and RTGS.
GCR notes the following possible broad negative impacts:
- The above events have sparked renewed inflationary concerns, which if continued, could deteriorate household affordability and could have a material impact on the quality and earnings of bank balance sheets.
- Fees and commissions may be lower, resulting from the economic deterioration and the change in the tax regime, which makes transactions costlier.
- Foreign currency shortages may worsen, not improve, having a negative impact on this import-reliant economy. As a result, GCR anticipates a sector wide deterioration in asset quality given the operational and viability complications that Zimbabwean corporates are exposed to. Furthermore, the ability of the industry to service existing foreign currency lines of credit may have reduced.
Rating action on the following publicly rated entities’ long-term (“LT”) national scale outlooks was taken:
|Banking group/Bank||Last Rating Date||Previous LT Rating||Previous Outlook||New Rating Date||New LT Rating||New Outlook|
|Agriculture Bank Zimbabwe Limited||Oct-17||BB-(zw)||Stable||Oct-18||BB-(zw)||Negative watch|
|African Banking Corporation of Zimbabwe Limited||May-18||BB+(ZW)||Positive||Oct-18||BB+(ZW)||Negative watch|
|Barclays Bank of Zimbabwe Limited||Jun-18||A+(ZW)||Stable||Oct-18||A+(ZW)||Negative watch|
|CBZ Asset Management (Private) Limited||Nov-17||A(ZW)(mq)||Stable||Oct-18||A(ZW)(mq)||Negative watch|
|CBZ Bank Limited||Apr-18||A(ZW)||Stable||Oct-18||A(ZW)||Negative watch|
|Central Africa Building Society||Aug-18||A+(ZW)||Stable||Oct-18||A+(ZW)||Negative watch|
|Ecobank Zimbabwe Limited||Aug-18||BBB(ZW)||Positive||Oct-18||BBB(ZW)||Negative watch|
|FBC Bank Limited||Jun-18||BBB+(ZW)||Positive||Oct-18||BBB+(ZW)||Negative watch|
|FBC Building Society||Jun-18||BBB-(ZW)||Positive||Oct-18||BBB-(ZW)||Negative watch|
|Nedbank Zimbabwe Limited||Apr-18||A(ZW)||Stable||Oct-18||A(ZW)||Negative watch|
|NMB Bank Limited||Aug-18||BB+(ZW)||Stable||Oct-18||BB+(ZW)||Negative watch|
|Stanbic Bank Zimbabwe Limited||Apr-18||AA-(ZW)||Stable||Oct-18||AA-(ZW)||Negative watch|
|Standard Chartered Bank Zimbabwe Limited||May-18||AA-(ZW)||Stable||Oct-18||AA-(ZW)||Negative watch|
|Steward Bank Limited||Oct-17||BBB(ZW)||Stable||Oct-18||BBB(ZW)||Negative watch|
|ZB Bank Limited||Oct-18||BB(ZW)||Stable||Oct-18||BB(ZW)||Negative watch|
|ZB Building Society||Oct-18||BB-(ZW)||Stable||Oct-18||BB-(ZW)||Negative watch|
|Non-banking financial institutions||Last Rating Date||Previous LT Rating||Previous Outlook||New Rating Date||New LT Rating||New Outlook|
|Untu Capital Limited||Sep-17||BB(ZW)||Positive||Oct-18||BB||Negative watch|
|Primary Analyst||Secondary Analyst|
|Vimbai Muhwati||Kudzanai Samanga|
|Credit Analyst||Junior Credit Analyst|
|(011) 784 – 1771||(011) 784 – 1771|
|Sector Head: Financial Institutions ratings|
|(011) 784 – 1771|
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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The credit ratings have been disclosed to the respective rated entities.
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.
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017