Rating action follows the sovereign rating's review announcement
Limassol, November 28, 2017 -- Moody's Investors Service, ("Moody's") has today placed on review
for downgrade 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 placed on review for downgrade
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
were also placed on review for downgrade, while Mercantile Bank
Limited's Baa1.za/P-2.za national-scale
issuer ratings were placed on review for upgrade. A full list of
the banks' ratings affected by today's rating action is at the end of
this press release.
Today's rating review action is driven primarily by 1) the potential weakening
of the South African government's credit profile, as captured by
Moody's recent decision to place South Africa's Baa3 government bond ratings
on review for downgrade, which affects the banks through their sizable
holdings of sovereign debt securities, inevitably linking their
creditworthiness to that of the national government, and 2) the
challenges the banks face in the operating environment in view of weak
economic growth in South Africa, which poses the risk of further
undermining consumer and investor confidence, increasing asset price
volatility and funding costs.
For further information on the sovereign action, refer to the sovereign
press release "Moody's places South Africa's Baa3 rating on review for
downgrade" (https://www.moodys.com/research/--PR_375816).
A full list of affected ratings is provided at the end of this press release.
RATINGS RATIONALE
-- WEAKENING CREDIT AND MACRO PROFILE OF THE SOUTH AFRICAN
GOVERNMENT EXERTS PRESSURE ON BANKS' CREDIT PROFILE
The rating action is primarily driven by the potential deterioration of
the South African government's credit profile, as captured by Moody's
recent rating action to place the sovereign rating (Baa3) on review for
downgrade. The banks' high sovereign 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 around 150% of
their capital bases, according to South African Reserve Bank's (SARB)
regulatory returns (BA900) as of September 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.
A second driver is the weakening operating environment in the context
of South Africa's subdued economy, which will challenge the
banks' financial performance. The rating agency expects GDP growth
of only 0.5% in 2017 and 1.2% in 2018 from
0.3% in 2016, levels significantly below the government's
target growth. In the current context, low consumer and investor
confidence poses the risk of further pressuring the banks' operating
income and asset quality, challenging the resilient performance
they have featured over the last two years.
As a result of these key rating drivers, the baseline credit assessments
(BCA) of baa3 for Standard Bank of South Africa, FirstRand Bank
Limited, Absa Bank Limited, Nedbank Limited, and Investec
Bank Ltd have been placed on review for downgrade.
-- FACTORS TO BE CONSIDERED IN THE RATING REVIEW
The rating review for downgrade will consider each bank's recent financial
performance and likely impact in 2018-19, as well as key
rating drivers and potential vulnerabilities in the context of a currently
challenging operating environment. Moody's will make an assessment
on a bank-by-bank basis their respective exposures to vulnerable
sectors, including unsecured loans to households, their individual
earnings and capital buffers and their response to the weakening environment.
Moreover, as part of the review process, the rating agency
will take into consideration the likely impact on banks' asset quality,
securities holdings valuations, and funding costs in light of the
potential downgrade of the sovereign rating to non-investment grade.
Although the rating agency notes the broad resilience demonstrated by
South African banks in recent years, supported by rising capital
and liquidity buffers, Moody's views the sovereign credit
profile as a key factor driving banks' ratings due to their high sovereign
exposure.
-- POTENTIAL REMAPPING WILL IMPACT BANKS' NSRs
A possible downgrade of the sovereign rating would also change the mapping
used 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 rating review of the global-scale
ratings, South African banks' long-term NSRs were placed
on review for possible downgrade, along with Moody's expectation
that a remapping of the NSR in the event of a sovereign downgrade would
provide a wider range of NSR positions for the highest global scale rating
assigned to local entities, compared to what was previously the
case.
The review for upgrade of Mercantile Bank Limited's Baa1.za/P-2.za
national-scale issuer ratings reflects to some degree the potential
compression of the NSR mapping scale, triggered by a possible downgrade
of the government's Baa3 senior unsecured bond rating. Although
Mercantile Bank's Ba3 global-scale long-term issuer
rating is being affirmed by this rating action driven by its resilient
performance, a revision of the NSR mapping could trigger a repositioning
up of the bank's NSRs because relative to other South African entities,
the bank's creditworthiness will improve.
WHAT COULD MOVE THE RATINGS UP/DOWN
As indicated by the review for downgrade on the sovereign rating,
any further 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 more than currently anticipated, leading to a
deterioration in their financial performance.
Conversely, there is little likelihood of an upgrade to the banks'
global scale ratings, as their standalone credit profiles are constrained
by the sovereign rating.
LIST OF AFFECTED RATINGS
Issuer: Absa Bank Limited
Placed On Review for Downgrade:
....LT Bank Deposits, currently Baa3,
Outlook Changed To Rating Under Review From Negative
....ST Bank Deposits, currently P-3
....NSR LT Bank Deposits, currently
Aa1.za
....Senior Unsecured Regular Bond/Debenture,
currently Baa3, Outlook Changed To Rating Under Review From Negative
....Senior Unsecured MTN Program, currently
(P)Baa3
....Adjusted Baseline Credit Assessment,
currently baa3
....Baseline Credit Assessment, currently
baa3
....LT Counterparty Risk Assessment,
currently Baa2(cr)
....ST Counterparty Risk Assessment,
currently P-2(cr)
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
Issuer: Barclays Africa Group Limited
Placed On Review for Downgrade:
....LT Issuer Rating, currently Ba1,
Outlook Changed To Rating Under Review From Negative
....NSR LT Issuer Rating, currently
Aa3.za
....Senior Unsecured MTN Program, currently
(P)Ba1
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
Issuer: FirstRand Bank Limited
Placed On Review for Downgrade:
....LT Bank Deposits, currently Baa3,
Outlook Changed To Rating Under Review From Negative
....ST Bank Deposits, currently P-3
....Senior Unsecured Regular Bond/Debenture,
currently Baa3, Outlook Changed To Rating Under Review From Negative
....Subordinate, currently Ba1/Ba2
....Junior Subordinate, currently Ba2
(hyb)
....Senior Unsecured MTN Program, currently
(P)Baa3
....Subordinate MTN Program, currently
(P)Ba2
....Junior Subordinate MTN Program,
currently (P)Ba2
....Other Short Term, currently (P)P-3
....Commercial Paper, currently P-3
....NSR LT Bank Deposits, currently
Aaa.za
....NSR Senior Unsecured Regular Bond/Debenture,
currently Aaa.za
....NSR Subordinate, currently Aa2.za/A1.za
....NSR Junior Subordinate, currently
A1.za (hyb)
....NSR Senior Unsecured MTN Program,
currently Aaa.za
....NSR Subordinate MTN Program, currently
A1.za
....NSR Junior Subordinate MTN Program,
currently A1.za
....Adjusted Baseline Credit Assessment,
currently baa3
....Baseline Credit Assessment, currently
baa3
....LT Counterparty Risk Assessment,
currently Baa2(cr)
....ST Counterparty Risk Assessment,
currently P-2(cr)
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
Issuer: Investec Bank Ltd.
Placed On Review for Downgrade:
....LT Bank Deposits, currently Baa3,
Outlook Changed To Rating Under Review From Negative
....ST Bank Deposits, currently P-3
....Senior Unsecured Regular Bond/Debenture,
currently Baa3, Outlook Changed To Rating Under Review From Negative
....Senior Unsecured MTN Program, currently
(P)Baa3
....Subordinate MTN Program, currently
(P)Ba1
....Tier III Debt MTN, currently (P)Ba1
....NSR LT Bank Deposits, currently
Aa1.za
....Adjusted Baseline Credit Assessment,
currently baa3
....Baseline Credit Assessment, currently
baa3
....LT Counterparty Risk Assessment,
currently Baa2(cr)
....ST Counterparty Risk Assessment,
currently P-2(cr)
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
Issuer: Mercantile Bank Limited
Placed On Review for Upgrade:
....NSR LT Issuer Rating, currently
Baa1.za
....NSR ST Issuer Rating, currently
P-2.za
Affirmations
....LT Issuer Ratings, Affirmed at Ba3
Stable
....ST Issuer Ratings, Affirmed at NP
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
Issuer: Nedbank Limited
Placed On Review for Downgrade:
....LT Bank Deposits, currently Baa3,
Outlook Changed To Rating Under Review From Negative
....ST Bank Deposits, currently P-3
....Subordinate, currently Ba1
....Senior Unsecured MTN Program, currently
(P)Baa3
....Subordinate MTN Program, currently
(P)Ba1
....NSR LT Bank Deposits, currently
Aa1.za
....NSR Senior Unsecured MTN Program,
currently Aa1.za
....NSR Subordinate MTN Program, currently
Aa3.za
....NSR Pref. Stock Non-cumulative,
currently Baa1.za (hyb)
....Adjusted Baseline Credit Assessment,
currently baa3
....Baseline Credit Assessment, currently
baa3
....LT Counterparty Risk Assessment,
currently Baa2(cr)
....ST Counterparty Risk Assessment,
currently P-2(cr)
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
Issuer: Standard Bank Group Limited
Placed On Review for Downgrade:
....LT Issuer Rating, currently Ba1,
Outlook Changed To Rating Under Review From Negative
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
Issuer: The Standard Bank of South Africa Limited
Placed On Review for Downgrade:
....LT Bank Deposits, currently Baa3,
Outlook Changed To Rating Under Review From Negative
....ST Bank Deposits, currently P-3
....Senior Unsecured MTN Program, currently
(P)Baa3
....NSR LT Bank Deposits, currently
Aa1.za
....Adjusted Baseline Credit Assessment,
currently baa3
....Baseline Credit Assessment, currently
baa3
....LT Counterparty Risk Assessment,
currently Baa2(cr)
....ST Counterparty Risk Assessment,
currently P-2(cr)
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Negative
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_1060333.
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.
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
