Johannesburg, 14 May 2019 – GCR Ratings has today extended the Rating Watch Negative on the national scale ratings of Zimbabwean financial institutions.
SUMMARY RATING RATIONALE
GCR Ratings (“GCR”) has accorded the above credit ratings to Zimbabwean financial institutions based on the following key factors:
The extension of the Rating Watch Negative follows the monetary policy statement under the “Establishment of an Inter-Bank Foreign Exchange Market to Restore Competitiveness” announced by the relevant authorities on the 20th of February 2019, which could place the financial sector under pressure in the short to medium term, albeit having the potential to improve the macro environment and the financial sector in the medium to long-term.
The Reserve Bank of Zimbabwe governor announced, alongside broader currency reform measures, the introduction of a new currency called ‘RTGS Dollars’. The currency comprises bond notes, bond coins, and RTGS balances. The central bank governor announced on the 22nd of February 2019 that ‘the rate will open at USD$1: RTGS$2.50’, as per agreement with foreign currency dealers in the banks. Positively, there has been only a small devaluation in the RTGS during the first month.
GCR broadly views the currency reforms as a positive development for Zimbabwe but only as long as the government improve the speed and consistency of monetary policy and fiscal reforms, alongside building its own reserves and ensuring political stability and the growth in domestic and external confidence. These are significant challenges and will require a great deal of political will to see them through an extended period. Nonetheless, GCR sees some pressures likely to be faced by the banking sector in the short to medium term, regardless of the government’s success in holding this course. Fundamentally, the economy will need time to adjust to the reforms and in the mean time we expect the ongoing inflationary pressures and currency mismatches to erode household and enterprise balance sheets. Furthermore, there may be banks which have greater or less exposure to the currency change, which could lead to material deterioration of capitalisation and earnings.
As a result of the above factors, GCR has extended the Rating Watch Negative of the Zimbabwean banking sector. This position will be reviewed on a bank by bank basis, over the next 3 to 6 months, as we obtain more information on individual bank’s exposures.
Rating action on the following publicly rated entities’ long-term (“LT”) national scale outlooks was taken:
|Ratings List||Long-term National Scale, and Outlook|
|Banking group/Bank||Last Rating Date||Previous LT Rating||Previous Rating Watch||New Rating Date||New LT Rating||New Rating Watch|
|Agriculture Bank Zimbabwe Limited||Oct-18||BB-(zw)||Negative||May-19||BB-(zw)||Negative|
|African Banking Corporation of Zimbabwe Limited||Oct-18||BB+(ZW)||Negative||May-19||BB+(ZW)||Negative|
|CBZ Asset Management (Private) Limited||Dec-18||A(ZW)(mq)||Negative||May-19||A(ZW)(mq)||Negative|
|CBZ Bank Limited||Oct-18||A(ZW)||Negative||May-19||A(ZW)||Negative|
|Central Africa Building Society||Oct-18||A+(ZW)||Negative||May-19||A+(ZW)||Negative|
|Ecobank Zimbabwe Limited||Oct-18||BBB(ZW)||Negative||May-19||BBB(ZW)||Negative|
|FBC Bank Limited||Oct-18||BBB+(ZW)||Negative||May-19||BBB+(ZW)||Negative|
|FBC Building Society||Oct-18||BBB-(ZW)||Negative||May-19||BBB-(ZW)||Negative|
|First Capital Bank Zimbabwe||Oct-18||A+(ZW)||Negative||May-19||A+(ZW)||Negative|
|Nedbank Zimbabwe Limited||Oct-18||A(ZW)||Negative||May-19||A(ZW)||Negative|
|NMB Bank Limited||Oct-18||BB+(ZW)||Negative||May-19||BB+(ZW)||Negative|
|Stanbic Bank Zimbabwe Limited||Oct-18||AA-(ZW)||Negative||May-19||AA-(ZW)||Negative|
|Standard Chartered Bank Zimbabwe Limited||Oct-18||AA-(ZW)||Negative||May-19||AA-(ZW)||Negative|
|Steward Bank Limited||Nov-18||BBB(ZW)||Negative||May-19||BBB(ZW)||Negative|
|ZB Bank Limited||Oct-18||BB(ZW)||Negative||May-19||BB(ZW)||Negative|
|ZB Building Society||Oct-18||BB-(ZW)||Negative||May-19||BB-(ZW)||Negative|
|Non-banking financial institutions||Last Rating Date||Previous LT Rating||Previous Rating Watch||New Rating Date||New LT Rating||New Rating Watch|
|Untu Capital Limited||Oct-18||BB(ZW)||Negative||May-19||BB(ZW)||Negative|
|Financial Institutions Analyst|
|Financial Institutions Associate|
|(011) 784 – 1771|
|Sector Head: Financial Institutions Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Zimbabwe Bank Statistical Bulletin (December 2017)
Zimbabwe Monetary Policy Statement (February 2019)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process 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; 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.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS SECTOR GLOSSARY
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Customer Deposit||Cash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.|
|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.|
|Default||Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Past Due||Any note or other time instrument of indebtedness that has not been paid on the due date.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Political Risk||The risk associated with investing and operating in a country where political changes may have a negative impact on earnings or returns.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Rating Watch||Indicates that a rating is under review for possible change in the short term and the movement may be either positive or negative.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Tier 1 Capital||Primary capital consists of issued ordinary share capital, hybrid debt capital, perpetual preference share capital, retained earnings and reserves. This amount is then reduced by the portion of capital that is allocated to trading activities and other regulatory deductions.|
|Treasury Bill||Short-term obligation backed by the government that bears no interest and is sold at a discount.|
For a detailed glossary of terms please click here