GCR affirms FBC Bank Limited’s rating of BBB+(ZW); Outlook Positive.

30 Jun 2018 In Rating Notifications

GCR affirms FBC Bank Limited’s rating of BBB+(ZW); Outlook Positive.

Johannesburg, 29 June 2018—Global Credit Ratings (“GCR”) has affirmed FBC Bank Limited’s long-term and short-term national scale ratings of BBB+(ZW) and A2(ZW) respectively; with the outlook accorded as Positive.

SUMMARY RATINGS RATIONALE

Global Credit Ratings has accorded the above credit ratings to FBC Bank Limited (“FBC Bank, “the bank”) based on the following key criteria:

The ratings of FBC Bank reflect its core position within the FBC group, modest market share and competitive position, uncertain operating environment, high funding concentration, appropriate levels of liquidity, modest capitalisation, resilient group earnings performance and an improvement in asset quality.

The outlook is Positive reflecting our opinion that the group will sustain its current performance in terms of earnings to boost capitalisation and the trend in improving asset quality.

FBC Bank is the 5th largest bank by customers advances and total assets in Zimbabwe. It compares modestly against its bigger peers with more resources and a larger market presence.

FBC Bank operates exclusively in Zimbabwe and the country remains exposed to structural, political and economic challenges including but not limited to exchange control.

The bank’s funding mix changed significantly with a 64.1% growth in retail deposits. Nevertheless, corporates constitute a significantly higher proportion at 62.5% which exposes the bank to concentration risk. The bank’s top 20 depositors contributed 57.9% of total deposits. However, the liquidity the bank holds against it is considered adequate.

The bank has adequate capitalisation with a tier 1 capital ratio of 15.1% as Tier 1 capital grew by 19.4% on the back of retained earnings growth. The bank’s total regulatory capital of USD75.2m complied with the current minimum regulatory requirement, and the bank is likely to meet the new capital requirement of USD100m by 2020. FBC Bank registered 13.1% growth in after-tax profits to USD12.0m at FY17, attributed to growth in non-interest income and decline in interest expense. The bank’s net interest margin increased to 8.9% at FY17 (FY16: 8.6%), primarily as a result of interest expense decreasing by 19.4% while interest income only declined by 3.8%. ROE and ROA reduced to 16.8% and 2.3% at FY17 (FY16: 19.6% and 2.5%) respectively.

Asset quality improved in FY17, with the gross non-performing loans (“NPL”) ratio decreasing to 4.1% at FY17 (FY16: 4.4%), and which continued to improve to 3.2% at 1Q FY18. This is expected to continue as the bank moderates lending and continues to implement more robust lending processes. The bank’s gross NPL ratio is below the regulatory cap of 5% and internal target of 5%. Loan write offs increased to USD7.4m in FY17 (FY16: USD6.0m) representing 3.2% of the gross loan book at FY17.

A sustained performance in asset quality, capitalisation, and profitability could prompt ratings improvement. Negative rating action would likely follow a reversal in trends in asset quality, capitalisation, profitability, and/or liquidity metrics currently observed.

 

 

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (June 2006)   Last rating (June 2017)
Long-term: BBB+(ZW)   Long term: BBB+(ZW); Short term: A2(ZW)
Outlook: Rating Watch   Outlook: Stable

 

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Vimbai Muhwati   Victor Matsilele
Credit Analyst: Financial Institution Ratings   Junior Credit Analyst: Financial Institution Ratings
(011) 784-1771   (011) 784-1771
.(JavaScript must be enabled to view this email address)   .(JavaScript must be enabled to view this email address)
     
Committee Chairperson    
Matthew Pirnie    
Sector Head: Financial Institutions    
(011) 784-1771    
.(JavaScript must be enabled to view this email address)    

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions (March 2017)

FBC Bank rating reports (2006-17)

 

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 FOR DOWNLOAD 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 ratings 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

FBC Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to FBC Bank Limited with no contestation of the ratings.

Information received from FBC Bank Limited and other reliable third parties to accord the credit ratings included:

  • Audited financial results as at 31 December 2017 (and four years of comparative numbers);
  • Unaudited management accounts as at 31 March 2018;
  • Budgeted financial statements for the year 2018;
  • Latest internal and/or external audit report to management;
  • Corporate governance and enterprise risk framework; and
  • Industry comparative data.

The ratings above were solicited by, or on behalf of FBC Bank Limited, 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 GLOSSARY

Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
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 The sum of money that is invested to generate proceeds.
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.
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.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.
Equity Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Interest Rate Risk Interest rate risk in the banking book is the risk that earnings or economic value will decline as a result of changes in interest rates. The sources of interest rate risk in the banking book are repricing/mismatch, basis and yield curve risk.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
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. 
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.
Margin The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.
National Scale Rating Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
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.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
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.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
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.
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.
   

For a glossary of terms please click here

 

 

 

 

 

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