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.
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).
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.
|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|
|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
|Country risk score||0|
|Sector risk score||1|
|Management and governance||0|
|Capital and Leverage||2|
|Funding structure and Liquidity||-2|
|National Scale Rating||BB-/B|
|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.|