HIGHVELD Discount House, a nascent financial institution which began operating three years ago, is now the second largest discount house in the country i
n terms of both assets and capital, a credit rating agency said in a report on the institution.
The report, done by Global Credit Rating Company (GCR) as part of routine annual mandatory credit ratings of financial institutions in the country, placed Highveld in second position in a competitive market with three older players, ABC Discount House, Discount Company of Zimbabwe (DCZ) and Tetrad Securities.
Credit ratings by international rating firms are now compulsory for all financial institutions following a liquidity crunch that resulted in the closure or placement under curatorship of at least 10 banking institutions in 2004.
Tetrad was last year named the dominant player in the discount house sector.
Tetrad’s and other institutions’ credit ratings have not been made available to the press by their managements.
Intermarket Discount House, which is on the verge of being absorbed by the holding company’s banking subsidiary, is not included in the peer comparison list on the report as the institution has recently emerged from curatoship.
The report said Highveld was second to ABC Discount House, which recently merged with ABC Holdings’ merchant bank, beating peers Tetrad and DCZ which recently survived a consolidation attempt into holding company Kingdom Financial Holdings’s banking operations following fears of hefty capital requirements by the central bank early this year.
GCR, which gave Highveld a BBB- rating, said the discount house had managed to grow “its brand name fairly rapidly and has gained increased respect and acceptance in the market”.
The BBB- rating indicates adequate protection factors, considered sufficient for prudent investment under GCR’s investment grade. However, there is a considerable variability in risk during economic cycles.
The rating means adequate claims paying ability under GCR’s claims paying ability rating scale. Protection factors are above average although there is an expectation of variability in risk over time due to economic or underwriting conditions.
The report said the discount company’s shareholder structure had “fairly diversified and consists primarily of executive management and foreign residents”.
“Notwithstanding the hyperinflationary environment, Highveld’s total assets increased on an inflation-adjusted basis….Cash and liquid assets increased to 13% of total assets, predominantly as a result of increased statutory reserve requirements during 2005,” said the report.
Retained earnings had increased capital and reserves by 993% during 2005, consequently increasing the capital to assets ratio to 28%, said GCR.
As at September 31, the discount house had met new minimum paid-up capital requirements of US$5 million pegged by the central bank against an official rate of $100 000/US$ before a devaluation made in August.
“The discount house reflected robust levels of profitability, with NPBT (net profit before tax) increasing by an annualised 1 111% at June 2006. The performance during this period has been on the back of significant growth in net interest income through money market activities and increased dealing income on the
back of a larger trading book,” GCR said.