Announcements Financial Institutions Rating Alerts

Ratings of Agribank placed on ‘SD’ and then immediately revised to BB-(zw)/ B (zw). Outlook stable.

Rating Action    

Johannesburg, 23 July 2019 – GCR Ratings (‘GCR’) has recognised a selective default event and restructuring of long-term debt by the Agricultural Bank of Zimbabwe Limited (‘Agribank’) by lowering the national scale issuer credit ratings to selective default (SD) and directly afterwards revising the ratings back to BB-(zw)/ B(zw).  The outlook is stable.  

In late 2018, the bank defaulted in paying the Industrial Development Corporation of South Africa (“IDCSA”) loan with a carrying amount of US$22.96 million when the repayment was due. The default was a result of foreign currency challenges prevalent in the Zimbabwean operating environment. The repayment amount was outstanding at FY18.

In the monetary policy announcement of February 2019 titled “ESTABLISHMENT OF AN INTER-BANK FOREIGN EXCHANGE MARKET TO RESTORE COMPETITIVENESS” and SI142/9 of June 2019, the banks, as with other legal entities, were required to register all foreign liabilities and legacy debts with the Exchange control and pay the local currency equivalent of the liability which the regulator was assuming at the rate of 1:1. Agribank was able to make this payment to the regulator at the beginning of July 2019, the bank is finalising the legal process of effectively removing the IDCSA loan from its books. As a result, the ratings now reflect our opinion that the bank is absolved from future risk of default on this instrument.

Rating Rationale

The BB- (zw)/ B (zw) national scale ratings on Agribank, balances the bank’s integral role in the government 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. The bank’s rating also reflects 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 rating also reflects the strength and continued support from the shareholder (ultimately the Zimbabwean government).

The stable outlook reflects the assumption that the Reserve Bank of Zimbabwe will honour the USD payments to IDCSA going forward. It also 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.

Analytical Contacts

Primary analyst Vimbai Muhwati Financial Institutions Analyst
Johannesburg, ZA     vimbaim@GCRratings.com +27 11 784 1771
     
Secondary analyst Samanga Kudzanai Financial Institutions Associate
Johannesburg, ZA kudzanais@GCRratings.com +27 11 784 1771
     
Committee chair Mathew Pirnie Sector Head: — Financial Institutions
Johannesburg, ZA mathewp@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
Rating Announcement titled “GCR reviews seven Zimbabwean financial institutions under the new criteria”, July 2019  

Ratings History

Agribank

Rating class Review Rating scale Rating class Outlook 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

RISK SCORE SUMMARY

Risk score  
   
Operating environment 1
Country risk score 0
Sector risk score 1
 
Business profile -1
Competitive position -1
Management and governance 0
   
Financial profile 0
Capital and Leverage 2
Risk 0
Funding structure and Liquidity -2
   
Comparative profile 0
Group support 0
Government support 1
Peer analysis 0
Total Score 1
National Scale Rating BB-/B

 

 

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.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
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.
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. 



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