Reuters logo
Fitch Affirms South African Banks at 'BBB-'; Revises Outlooks to Negative
December 6, 2016 / 5:21 PM / 10 months ago

Fitch Affirms South African Banks at 'BBB-'; Revises Outlooks to Negative

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch Affirms South African Banks; Revises Outlooks to Negative - Rating Action Report here LONDON, December 06 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Absa Bank Limited (Absa), FirstRand Bank Limited (FRB), Investec Bank Limited (Investec), Nedbank Limited (Nedbank), and Standard Bank of South Africa (SBSA) at 'BBB-'. The agency has also revised the Outlook on all banks' Long-Term IDRs to Negative from Stable. The Outlook change follows the revision on the Outlook of the South African sovereign rating to Negative on 25 November 2016, see "Fitch Revises South Africa's Outlook to Negative; Affirms at 'BBB-' on www.fitchratings.com). Fitch has also affirmed the Long-Term IDRs of the bank holding companies, Barclays Africa Group Limited (BAGL), Standard Bank Group Limited (SBG), Nedbank Group Limited (NedGroup) and Investec Limited (IL), at 'BBB-' respectively and revised their Outlooks to Negative (from Stable). A full list of rating actions is given in the rating action report above. KEY RATING DRIVERS IDRs AND VIABILITY RATINGS The IDRs of the banks' (and their holding companies) are driven by standalone creditworthiness, as defined by the respective institutions' Viability Ratings (VR). The banks' VRs are capped by the South African sovereign rating (BBB-/Negative) due to the majority of their operations being in South Africa and their high exposure to domestic sovereign debt relative to capital. This explains the revision of the Outlooks on the banks' Long-Term IDRs to Negative, mirroring that of the sovereign rating. The banks' VRs balance the risks of a weakening operating environment, which has a high influence on all VRs, with still resilient company profiles and strong franchises, through which they hold over 90% of banking assets. Furthermore, we view all banks' business models as diverse, with the benefit of strong management, and robust governance and risk management frameworks. These factors underpin sound financial metrics, in particular capitalisation and still healthy earnings generation, which can offset expected rises in loan impairments. Although we expect absolute earnings to continue to rise, we believe that growth will be slower and profitability metrics to decline over the next 12 to 18 months. Fitch expects sector asset quality to deteriorate moderately in 2017, due to weaker domestic conditions, including slower growth, higher interest rates and rising inflation as well as risks to operations in rest of Africa. As a consequence, we expect the industry's impaired loan ratio to rise to around 4% by end-2017, but within tolerable levels for the banks' ratings. Our base case forecasts no material problems in the domestic real estate sector affecting banks' sizeable residential and commercial mortgage books. If this was to occur impaired loan ratios could increase rapidly. Funding and liquidity remains sound as banks are funded mainly in local currency, and in customer deposits. Fitch-calculated loans-to-deposit ratios are healthy and averaged 100% at end-June 2016. However, funding is primarily short-term, with a high reliance on wholesale deposits, which form a large part of banks' funding profiles. Wholesale deposits include retail savings and investments made through pension funds, insurance companies and money managers, reflecting the sector's unique savings structure. However, flight risk of these funds is to some extent mitigated by the closed rand system. National discretion has helped banks to meet phased-in Basel III Liquidity Coverage Ratio requirements. It is also likely to help banks meet future Net Stable Funding Ratio requirements in full, which was previously thought to be a challenge for all banks. NATIONAL RATINGS National Ratings reflect the creditworthiness of an issuer relative to the best credit in South Africa. The National Ratings of all banks and their respective holding companies have been affirmed and are driven by their respective Long-Term Local Currency IDRs. SUPPORT RATINGS AND SUPPORT RATING FLOORS The Support Ratings (SR) of Absa, FRB, Investec, Nedbank and SBSA are all affirmed at '3', reflecting Fitch's view of a moderate probability of sovereign support from the South African authorities for the banks, if required. Their SRs and Support Rating Floors (SRF) factor in the proposed enactment of resolution legislation in South Africa, which could allow senior creditors to be "bailed-in" to recapitalise a failing bank. However, Fitch continues to factor in some sovereign support propensity, as the South African authorities are likely to retain the flexibility to provide extraordinary support in the interest of financial stability. NedGroup's and BAGL's SRs of '4' reflect a limited probability of support from the institutions' respective parents, Old Mutual Plc (BBB+/Stable) and Barclays Plc (A/Stable). The SRs of both bank holding companies reflect the ultimate parents' adequate ability, but limited willingness, to support. The latter reflects the proposed sale of these groups by their respective parents, but also Fitch's expectation that the parents will continue to support the groups until completion of the respective sale processes. The SRs and SRFs of IL and SBG are affirmed at '5' and 'No Floor', respectively, as Fitch believes that support from the authorities would not extend to holding companies. SENIOR DEBT AND SUBORDINATED DEBT SECURITIES The long-term ratings of senior debt issued by Absa, FRB, Investec, Nedbank and SBSA are equalised with their respective issuers' Long-Term IDRs. The National long-term ratings of senior debt issued by Absa, BAGL and FRB are equalised with their respective issuers' National Long-Term Ratings. The long-term ratings of subordinated debt issued by FRB and Nedbank are one notch below their VRs to reflect higher loss severity relative to senior debt. The National long-term ratings of subordinated debt issued by BAGL, FRB and Investec are one notch below their National Long-Term Ratings, also to reflect higher loss severity relative to senior debt. RATING SENSITIVITIES IDRs AND VRs All banks' Long-Term IDRs are sensitive to a change in the VRs. An upgrade of the banks' VRs is possible if the sovereign ratings are upgraded but this is unlikely given the Negative Outlook on the sovereign rating. A downgrade of the sovereign rating would be mirrored by a corresponding action on the banks' IDRs and VRs. In addition to a sovereign downgrade, all banks' IDRs and VRs are sensitive to deterioration in asset quality in excess of Fitch's expectations. The ratings are also sensitive to significant weakening in the banks' funding and liquidity profiles. This is not the base case of Fitch given an improving trend across the sector in this respect owing to phased-in regulation. However, negative sentiment around sovereign creditworthiness may lead to a drain on liquidity in an extreme scenario and reduce access to debt capital markets for the banks, triggering a negative rating action. NATIONAL RATINGS The banks' National Ratings are sensitive to a change in the banks' creditworthiness relative to other domestic peers. SRs and SRFs The SRs and SRFs of Absa, FRB, Investec, Nedbank and SBSA are sensitive to a change in the willingness and ability of the authorities to support the banks. A downgrade of the sovereign rating may result in a downgrade and downward revision of the banks' SRs and SRFs respectively. Fitch's view of a weaker propensity to support the banks is most likely to be triggered by clear statements of commitment to utilise resolution framework to resolve troubled banks in all scenarios. The SRs and SRFs of BAGL and NedGroup are sensitive to the completion of their sale process by their respective parents, Barclays and Old Mutual, or clear statements from the parents that they will not provide extraordinary support if required, during the sale process. As holding companies, there is no upside at present for IL's and SBG's SR and SRF. SENIOR DEBT AND SUBORDINATED DEBT SECURITIES The long-term ratings of senior debt issued by Absa, FRB, Investec, Nedbank and SBSA are sensitive to a change in their Long-Term IDRs. The National long-term ratings of senior debt issued by Absa, BAGL and FRB are sensitive to a change in their National Long-Term Ratings. The long-term ratings of subordinated debt issued by FRB and Nedbank are sensitive to a change in their VRs. The National long-term ratings of subordinated debt issued by BAGL, FRB and Investec are sensitive to a change in their National Long-Term Ratings. Contact: Primary Analyst Mahin Dissanayake Director +44 203 530 1618 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Andrew Parkinson Director +44 203 530 1420 Committee Chairperson Eric Dupont Senior Director +33 1 44 29 91 31 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1015957 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below