Financial Institutions Rating Alerts

GCR extends the Rating Watch Negative placed on the ratings of Zimbabwean financial institutions.

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 ListLong-term National Scale, and Outlook
Banking group/BankLast Rating DatePrevious LT RatingPrevious Rating WatchNew Rating DateNew LT RatingNew Rating Watch
Agriculture Bank Zimbabwe LimitedOct-18BB-(zw)Negative May-19BB-(zw)Negative
African Banking Corporation of Zimbabwe LimitedOct-18BB+(ZW) Negative May-19BB+(ZW) Negative
CBZ Asset Management (Private) LimitedDec-18A(ZW)(mq)Negative May-19A(ZW)(mq)Negative
CBZ Bank LimitedOct-18A(ZW)Negative May-19A(ZW)Negative
Central Africa Building SocietyOct-18A+(ZW)Negative May-19A+(ZW)Negative
Ecobank Zimbabwe LimitedOct-18BBB(ZW) Negative May-19BBB(ZW) Negative
FBC Bank LimitedOct-18BBB+(ZW)Negative May-19BBB+(ZW)Negative
FBC Building SocietyOct-18BBB-(ZW) Negative May-19BBB-(ZW) Negative
First Capital Bank ZimbabweOct-18A+(ZW)Negative May-19A+(ZW)Negative
Nedbank Zimbabwe LimitedOct-18A(ZW)Negative May-19A(ZW)Negative
NMB Bank LimitedOct-18BB+(ZW) Negative May-19BB+(ZW) Negative
Stanbic Bank Zimbabwe LimitedOct-18AA-(ZW)Negative May-19AA-(ZW)Negative
Standard Chartered Bank Zimbabwe LimitedOct-18AA-(ZW)Negative May-19AA-(ZW)Negative
Steward Bank LimitedNov-18BBB(ZW)Negative May-19BBB(ZW)Negative
ZB Bank LimitedOct-18BB(ZW)Negative May-19BB(ZW)Negative
ZB Building SocietyOct-18BB-(ZW)Negative May-19BB-(ZW)Negative
       
Non-banking financial institutionsLast Rating DatePrevious LT RatingPrevious Rating WatchNew Rating DateNew LT RatingNew Rating Watch
Untu Capital LimitedOct-18BB(ZW)Negative May-19BB(ZW)Negative

ANALYTICAL CONTACTS

Primary Analyst
Vimbai Muhwati
Financial Institutions Analyst
(011) 784-1771
vimbaim@GCRratings.com
 
Secondary Analyst
Kudzanai Samanga
Financial Institutions Associate
(011) 784 – 1771
kudzanais@GCRratings.com
 
Committee Chairperson
Matthew Pirnie
Sector Head: Financial Institutions Ratings
(011) 784-1771
matthewp@GCRratings.com

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 QualityRefers 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 AdequacyA 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 DepositCash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.
DebtAn 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.
DefaultFailure 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 RiskThe 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-TermNot current; ordinarily more than one year.
Long-Term RatingReflects 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.
MaturityThe length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Past DueAny note or other time instrument of indebtedness that has not been paid on the due date.
Performing LoanA loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Political RiskThe risk associated with investing and operating in a country where political changes may have a negative impact on earnings or returns. 
PortfolioA 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 OutlookIndicates 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 WatchIndicates that a rating is under review for possible change in the short term and the movement may be either positive or negative.
RiskThe chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk ManagementProcess 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-TermCurrent; ordinarily less than one year.
Short-Term RatingAn 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 CapitalPrimary 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 BillShort-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



ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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