Rating action follows the sovereign rating's confirmation at Baa3 (stable)
Limassol, March 27, 2018 -- Moody's Investors Service, ("Moody's") has today confirmed the Baa3
long-term local- and foreign-currency deposit ratings
of the five largest South African banks: The Standard Bank of South
Africa Limited (Standard Bank of South Africa), FirstRand Bank Limited,
Absa Bank Limited, Nedbank Limited and Investec Bank Ltd.
The rating agency has also confirmed the Ba1 long-term local-
and foreign-currency issuer ratings of Standard Bank Group Limited
and Barclays Africa Group Limited. The long-term national-scale
ratings (NSRs) for these banks (no NSRs assigned to Standard Bank Group
Limited) were also confirmed, including Mercantile Bank Limited's
Baa1.za/P-2.za national-scale issuer ratings
following the affirmation of its Ba3 global-scale long-term
local-currency issuer rating. A full list of the banks'
ratings affected by today's rating action is at the end of this press
release.
Today's rating action is driven primarily by: 1) the more stable
and predictable political and economic environment in South Africa following
recent elections, which in turn has minimised the potential downward
pressure on the banks' credit profiles through their sizable sovereign-related
exposure; 2) the prospects of an improved economic growth performance
and operating environment, following the recent change in government,
which could enhance consumer and investor confidence, easing banks'
asset price volatility and funding costs; and 3) banks' proven
track record to sustain resilient financial performance in 2016-17
amid challenging economic conditions.
For further information on the sovereign action, refer to the sovereign
press release "Moody's confirms South Africa's Baa3 rating and changes
the outlook to stable" (https://www.moodys.com/research/--PR_381164).
A full list of affected ratings is provided at the end of this press release.
RATINGS RATIONALE
-- THE MORE STABLE CREDIT AND MACRO PROFILE OF SOUTH AFRICA
EASES PRESSURE ON BANKS' CREDIT PROFILE
The rating action is primarily driven by the confirmation of South Africa's
rating of Baa3 with a stable outlook, reflecting Moody's view that
the previous weakening of South Africa's institutions will gradually
reverse under a more transparent, predictable policy framework.
Accordingly, this has eased the potential downward pressure on the
banks' credit profiles. The banks' high sovereign-related
exposure, mainly in the form of government debt securities held
as part of their liquid assets requirement, links their credit profile
to that of the government.
The top five banks' overall sovereign exposure, including loans
to state-related entities, averages (weighted) around 150%
of their capital bases, according to South African Reserve Bank's
(SARB) regulatory returns (BA900) as of December 2017. These linkages
result in a high degree of correlation between sovereign and bank credit
risk, as a result of which the banks' standalone credit profiles
and ratings are constrained by the rating of the government. The
confirmation of the sovereign rating alleviates any downward pressure
that was previously exerted on banks' credit worthiness from their
sovereign-related exposure, and thus underpins the confirmation
of the five banks' baseline credit assessment (BCA) of baa3.
Concurrently, the rating agency notes that it has raised South Africa's
'Macro Profile' score that it uses in its bank scorecards
to 'Moderate' from 'Moderate --', following
the revision by its sovereign group of its assessment of the country's
susceptibility to event risk to 'Low +' from 'Moderate
--' previously. This was primarily driven by the reduced
political event risks, following the election of the new President
Cyril Ramaphosa that is considered pro-business and aims to rebuild
the country's institutional strength and attain fiscal consolidation.
-- PROSPECTS FOR AN IMPROVED ECONOMIC GROWTH PERFORMANCE
AND OPERATING ENVIRONMENT
A second driver is the prospect for an improved operating environment
in the context of South Africa's recently elected new government,
which enhanced consumer and investor confidence, easing banks'
asset price volatility and funding costs that will support their financial
performance. The recovery in the country's institutions will,
if sustained, gradually support a corresponding recovery in its
economy, along with a stabilization of fiscal strength.
The rating agency expects GDP growth to gradually pick up to 1.4%
in 2018 and 1.9% in 2019 from only 1.3% in
2017, levels still below the government's target growth.
In the current context of a potentially improving economic growth,
consumer and investor confidence is likely to be enhanced further raising
the prospects for increased lending supporting banks' operating income
and asset quality.
-- BANKS' PROVEN TRACK RECORD TO SUSTAIN RESILIENT
FINANCIAL PERFORMANCE IN 2016-17 AMID CHALLENGING ECONOMIC CONDITIONS.
The third driver that underpins the confirmation of banks' ratings
is their resilient financial performance over the last two years,
despite the challenging economic conditions. The six rated banks
comprise around 90% of the banking system's assets,
and thus drive the system's underlying strong performance.
The rated banks' financial fundamentals are largely in line with
the banking system's key indicators. The banking system's
profitability has been robust with return on assets (RoA) remaining stable
at 1.3% in 2017 and 2016, with net interest margin
(NIM) improving marginally to 4% in 2017 from 3.9%
in 2016.
Banks' asset quality has also remained resilient, despite
the low economic growth environment in 2016-17 and the high interest
rate cycle. Nonperforming loans (NPLs) for the system increased
only marginally to ZAR108 billion in 2017 from ZAR106 billion in 2016,
comprising around 2.8% of gross loans in 2017 from 2.9%
in 2016. Such favourable asset quality combined with banks'
improved solvency, with the common equity Tier 1 (CET1) ratio for
the system increasing to 12.9% in 2017 from 12.4%
in 2016 and the leverage ratio increasing to 6.6% in 2017
from 6.2% in 2016, are key pillars behind the five
banks' investment grade deposit rating of Baa3. At the same
time, banks in South Africa maintained comfortable core liquidity
with the system's liquidity coverage ratio (LCR) increasing to 119%
in 2017 from 110% in 2016.
As a result of these key rating drivers, the baseline credit assessments
(BCA) of baa3 for The Standard Bank of South Africa Limited, FirstRand
Bank Limited, Absa Bank Limited, Nedbank Limited, and
Investec Bank Ltd have been confirmed. Accordingly, these
banks' deposit ratings of Baa3 were also confirmed with a stable
outlook.
-- BANKS' NATIONAL SCALE RATINGS (NSRs) ALSO CONFIRMED,
INCLUDING MERCANTILE BANK'S NSRs
Following the confirmation of the sovereign rating and banks' global-scale
deposit ratings, Moody's said there is no amendment to its
mapping that uses to derive South African banks' NSRs, given that
the sovereign rating acts as an anchor point for the national scale.
Moody's NSRs are intended as relative measures of creditworthiness among
debt issues and issuers within a country, enabling market participants
to better differentiate relative risks. Accordingly, in conjunction
with the confirmation of the global-scale ratings, South
African banks' long-term NSRs were confirmed as well.
In addition, the rating agency also confirmed the national-scale
issuer ratings of Baa1.za/P-2.za for the smaller
Mercantile Bank Limited, underpinned by the affirmation of the bank's
global-scale long-term issuer rating of Ba3 with a stable
outlook. The bank's favourable performance in the last few
years, combined with its solid capital base have driven the affirmation
of its global-scale issuer rating, despite some asset quality
and customer-driven legal challenges.
STABLE OUTLOOK
The stable outlook on all banks' long term ratings, reflects
the rating agency's expectation that the more favourable economic
conditions in 2018-19 will somewhat improve banks' financial
performance, and diminish any downward pressure on banks'
credit profile. In addition, banks' stable outlook
is in line with the sovereign rating outlook, which indicates reduced
vulnerabilities to any of the banks' sovereign-related exposures.
WHAT COULD MOVE THE RATINGS UP/DOWN
A potential upgrade of the sovereign rating, which currently constrains
banks' BCAs, combined with a solid bank financial performance
with low NPLs could lead to a bank rating upgrade. Upward momentum
on Mercantile Bank's ratings could develop following material improvements
in the bank's funding profile and earnings-generating capacity
(particularly in the form of fee income), and a reduction in credit
concentrations, or in case an entity with a relatively strong standalone
credit profile were to acquire the bank, potentially leading us
to incorporate affiliate support rating uplift.
Conversely, any deterioration in the creditworthiness of South Africa
and/or weaker macro profile would likely result in downgrades of the banks'
ratings, in view of their sizeable holdings of sovereign debt securities.
In addition, the banks' ratings could be downgraded if operating
conditions worsen, leading to a deterioration in their financial
performance.
LIST OF AFFECTED RATINGS
Issuer: Absa Bank Limited
Confirmations:
....LT Bank Deposits, Confirmed at Baa3,
Outlook changed To Stable From Rating Under Review
....ST Bank Deposits, Confirmed at P-3
....NSR LT Bank Deposits, Confirmed
at Aa1.za
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Baa3, Outlook changed To Stable From Rating Under Review
....Senior Unsecured MTN Program, Confirmed
at (P)Baa3
....Adjusted Baseline Credit Assessment,
Confirmed at baa3
....Baseline Credit Assessment, Confirmed
at baa3
....LT Counterparty Risk Assessment,
Confirmed at Baa2(cr)
....ST Counterparty Risk Assessment,
Confirmed at P-2(cr)
Affirmations:
....NSR ST Bank Deposits, Affirmed P-1.za
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Barclays Africa Group Limited
Confirmations:
....LT Issuer Ratings, Confirmed at
Ba1, Outlook changed To Stable From Rating Under Review
....NSR LT Issuer Rating, Confirmed
at Aa3.za
....Senior Unsecured MTN Program , Confirmed
at (P)Ba1
Affirmations:
....ST Issuer Ratings, Affirmed NP
....NSR ST Issuer Rating, Affirmed P-1.za
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: FirstRand Bank Limited
Confirmations:
....LT Bank Deposits, Confirmed at Baa3,
Outlook changed To Stable From Rating Under Review
....ST Bank Deposits, Confirmed at P-3
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Baa3, Outlook changed To Stable From Rating Under Review
....Subordinate, Confirmed at Ba1/Ba2
....Junior Subordinate, Confirmed at
Ba2 (hyb)
....Senior Unsecured MTN Program, Confirmed
at (P)Baa3
....Subordinate MTN Program, Confirmed
at (P)Ba2
....Junior Subordinate MTN Program,
Confirmed at (P)Ba2
....Other Short Term Program, Confirmed
at (P)P-3
....Commercial Paper, Confirmed at P-3
....NSR LT Bank Deposits, Confirmed
at Aaa.za
....NSR Senior Unsecured Regular Bond/Debenture,
Confirmed at Aaa.za
....NSR Subordinate, Confirmed at Aa2.za/A1.za
....NSR Junior Subordinate, Confirmed
at A1.za (hyb)
....NSR Senior Unsecured MTN Program,
Confirmed at Aaa.za
....NSR Subordinate MTN Program, Confirmed
at A1.za
....NSR Junior Subordinate MTN Program,
Confirmed at A1.za
....Adjusted Baseline Credit Assessment,
Confirmed at baa3
....Baseline Credit Assessment, Confirmed
at baa3
....LT Counterparty Risk Assessment,
Confirmed at Baa2(cr)
....ST Counterparty Risk Assessment,
Confirmed at P-2(cr)
Affirmations:
....NSR ST Bank Deposits, Affirmed P-1.za
....NSR Other Short Term Program, Affirmed
P-1.za
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Investec Bank Ltd.
Confirmations:
....LT Bank Deposits, Confirmed at Baa3,
Outlook changed To Stable From Rating Under Review
....ST Bank Deposits, Confirmed at P-3
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Baa3, Outlook changed To Stable From Rating Under Review
....Senior Unsecured MTN Program, Confirmed
at (P)Baa3
....Subordinate MTN Program, Confirmed
at (P)Ba1
....Tier III Debt MTN Program, Confirmed
at (P)Ba1
....NSR LT Bank Deposits, Confirmed
at Aa1.za
....Adjusted Baseline Credit Assessment,
Confirmed at baa3
....Baseline Credit Assessment, Confirmed
at baa3
....LT Counterparty Risk Assessment,
Confirmed at Baa2(cr)
....ST Counterparty Risk Assessment,
Confirmed at P-2(cr)
Affirmations:
....NSR ST Bank Deposits, Affirmed P-1.za
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Mercantile Bank Limited
Confirmations:
....NSR LT Issuer Rating, Confirmed
at Baa1.za
....NSR ST Issuer Rating, Confirmed
at P-2.za
Affirmations:
....LT Issuer Rating, Affirmed Ba3 Stable
....ST Issuer Rating, Affirmed NP
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Nedbank Limited
Confirmations:
....LT Bank Deposits, Confirmed at Baa3,
Outlook changed To Stable From Rating Under Review
....ST Bank Deposits, Confirmed at P-3
....Subordinate, Confirmed at Ba1
....Senior Unsecured MTN Program, Confirmed
at (P)Baa3
....Subordinate MTN Program, Confirmed
at (P)Ba1
....NSR LT Bank Deposits, Confirmed
at Aa1.za
....NSR Pref. Stock Non-cumulative,
Confirmed at Baa1.za (hyb)
....NSR Senior Unsecured MTN Program,
Confirmed at Aa1.za
....NSR Subordinate MTN Program, Confirmed
at Aa3.za
....Adjusted Baseline Credit Assessment,
Confirmed at baa3
....Baseline Credit Assessment, Confirmed
at baa3
....LT Counterparty Risk Assessment,
Confirmed at Baa2(cr)
....ST Counterparty Risk Assessment,
Confirmed at P-2(cr)
Affirmations:
....NSR ST Bank Deposits, Affirmed P-1.za
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Standard Bank Group Limited
Confirmations:
....LT Issuer Ratings, Confirmed at
Ba1, Outlook changed To Stable From Rating Under Review
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: The Standard Bank of South Africa Limited
Confirmations:
....LT Bank Deposits, Confirmed at Baa3,
Outlook changed To Stable From Rating Under Review
....ST Bank Deposits, Confirmed at P-3
....Senior Unsecured MTN Program, Confirmed
at (P)Baa3
....NSR LT Bank Deposits, Confirmed
at Aa1.za
....Adjusted Baseline Credit Assessment,
Confirmed at baa3
....Baseline Credit Assessment, Confirmed
at baa3
....LT Counterparty Risk Assessment,
Confirmed at Baa2(cr)
....ST Counterparty Risk Assessment,
Confirmed at P-2(cr)
Affirmations:
....NSR ST Bank Deposits, Affirmed P-1.za
Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the website.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Nondas Nicolaides
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
