GCR downgrades Barclays Bank of Zimbabwe Limited’s rating to A+(ZW); Outlook Stable.

05 Jun 2018 In Rating Notifications

GCR downgrades Barclays Bank of Zimbabwe Limited’s rating to A+(ZW); Outlook Stable.

Johannesburg, 5 June 2018 - Global Credit Ratings (“GCR”) has downgraded Barclays Bank of Zimbabwe Limited’s long-term and short-term national scale ratings to A+(ZW) and A1(ZW) respectively; with the outlook accorded as Stable. The ratings are valid until May 2019.

 

SUMMARY RATINGS RATIONALE

The rating action on Barclays Bank of Zimbabwe Limited (“Barclays” or “the bank”) reflect its change in majority shareholder from Barclays Plc to FMB Capital Holdings Plc (“FMB Capital”). Barclays’ asset quality, liquidity, and capital adequacy metrics remain solid, supported by an improved financial performance over the review period despite a challenging operating environment (characterised by weak economic activity, and cash/foreign currency shortages).

Barclays’ ratings have historically been underpinned by the profile of Barclays Plc.  This reflected the wider group’s strong capacity to support as well as benefits to franchise value, risk management oversight, and technical expertise. Post the divesture of Barclays Plc’s controlling stake to FMB Capital, GCR believes the shareholder’s capacity to support has inevitably reduced (reflecting the relative balance sheet sizes of the two groups). However, FMB Capital has demonstrated its willingness to support, through the opening of intragroup credit lines and investment in the migration programme from Barclays Plc to the FMB Capital systems and processes. It is early in the process, so the impact on the franchise and operations of Barclays has yet to be fully ascertained.

The bank has a solid capital base. Core capital increased by 40.4% to USD80.7m at FY17 (FY16: USD57.4m), driven by organic growth (through 100% earnings retention). All profits are being retained in order to meet the USD100m core capital regulatory requirement which will come into effect in 2020.  As a result, the bank’s Tier 1 and total Capital Adequacy Ratios (“CAR”) increased to 23% and 28% respectively at FY17 (FY16: 16.5% and 22.4%), remaining well above the regulatory minima of 8% and 12% correspondingly.

Credit risk is considered high in view of the fragile operating environment which has seen most economic sectors struggle. To mitigate this risk, the bank adopted a cautious and highly selective approach to lending, and proactively tightened its credit granting criteria. Consequently, the bank’s gross non-performing loans ratio of 2.2% compared favourably to the banking industry average of 7.1% and the RBZ’s target of 5%.

Operating expenditure increased 8.8% in FY17. Nonetheless Barclays’ net profit before tax grew 75.2% in FY17 to USD25.3m (FY16: USD14.4m), largely driven by non-interest income growth of 25.1%. The bank’s cost to income ratio declined to 64.9% at FY17 (FY16: 73.2%). Overall, profitability as measured by ROaA and ROaE increased to 3.8% and 25.4% respectively in FY17 (FY16: 2.8% and 18.1%).

The bank’s funding profile continues to be supported mainly by its large corporate deposit book, and remains susceptible to external shocks, given its reliance on transitory and relatively volatile wholesale deposits, exacerbated by the aforementioned challenging operating environment. To manage liquidity risk, the bank maintains high levels of liquidity evidenced by the prudential liquidity ratio which was well above the statutory minimum of 30% and in line with the banking sector average of 62.6%.

An improvement in the operating environment, significant gains in market share, as well as sustained improvements in balance sheet strength, profitability, capitalisation and asset quality could positively impact the rating. Downward pressure on Barclays’ ratings could stem from a loss of franchise, deterioration in asset quality, long-term earnings and capitalisation.

 

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (September 2000)   Last rating (May 2017)
Long-term: AA-(ZW); Short-term: A1+(ZW)   Long term: AA-(ZW); Short term: A1+(ZW)
Outlook: Stable   Outlook: Negative

 

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Vimbai Muhwati   Thandolwenkosi Mkwanazi
Credit Analyst   Junior Credit Analyst
(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    
Corne Els    
Senior Analyst    
(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)

Zimbabwe Bank Statistical Bulletin (December 2017)

Barclays rating reports (2000-17)

 

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.

Barclays Bank of Zimbabwe Limited participated in the rating process via face-to-face management meetings 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 Barclays Bank of Zimbabwe Limited with no contestation of the ratings.

Information received from Barclays Bank of Zimbabwe 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)
  • Latest internal and/or external report to management
  • Corporate governance and enterprise risk framework
  • Industry comparative data

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 GLOSSARY

Arrears An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.
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.
Audit Report A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).
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.
Collateral Asset provided to a creditor as security for a loan.
Corporate Governance Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating Agency An entity that provides credit rating services.
Customer Deposit Cash received in exchange for a service, including safekeeping, savings, investment, etc. Customer deposits are a liability in a bank’s books.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
Financial Statements Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.
Impairment Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.
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.
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. 
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.
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.
Net Profit Trading/operating profits after deducting the expenses detailed in the profit and loss account (including taxes).
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
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.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Regulatory Capital The total of primary, secondary and tertiary capital.
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.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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.

For a 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://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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