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Rating Action:

Moody's affirms the ratings of First National Bank of Namibia; changes outlook to negative

27 May 2020

London, 27 May 2020 -- Moody's Investors Service (Moody's) has today affirmed all ratings and assessments of First National Bank of Namibia Limited (FNB Namibia), including its Ba2/Not Prime long-term and short-term local currency deposit ratings, and changed the outlook on the bank's long-term ratings to negative from stable.

A full list of the bank's ratings affected by today's rating action is at the end of this press release.

The rating action follows Moody's decision to affirm the Namibian government's long-term issuer rating of Ba2 and change its outlook to negative from stable on 22 May 2020. The negative outlook on the sovereign reflects the economic and financial pressures the coronavirus shock is exerting on Namibia's credit metrics, exacerbating existing vulnerabilities. For further information on the sovereign rating action, please refer to Moody's press release: https://www.moodys.com/research/--PR_424759.

RATINGS RATIONALE

The affirmation of FNB Namibia's ratings captures its good capital buffers and solid profitability.

The change of outlook to negative reflects (1) FNB Namibia's sizable holding of sovereign debt securities, at around 144% of its capital base as of December 2019, which links the bank's creditworthiness to that of the government of Namibia, and (2) the deteriorating economic conditions in Namibia due to the coronavirus pandemic, that will expose the bank to increasing asset quality deterioration and profitability headwinds. Moody's regards the coronavirus outbreak as a social risk under its ESG framework.

AFFIRMATION OF RATINGS

FNB Namibia's ratings reflect the bank's (1) solid capital metrics with a tangible common equity ratio of 13.7% as of December 2019, which provides a good buffer to absorb expected increasing loan losses in coming quarters, and (2) strong profitability metrics, with a net income-to-tangible assets ratio 2.8% as of December 2019. Moody's expects a deterioration in profitability, but it will remain ahead the ba3 BCA median.

As concerns FNB Namibia's capitalisation, Moody's adjusted TCE to RWA ratio is higher than the global ba3 BCA peer median of 11.9%, as of May 2020, and the rating agency expects the bank's long-term dividend strategy of paying out only a portion of earnings, generally between 30% and 55%, to support capital buffers amid coronavirus-induced uncertainty.

Regarding FNB Namibia's profitability, good profitability is underpinned by its strong franchise in Namibia, being the country's largest bank, with about 28% market share in total assets and a diversified client base, and good efficiency, with the bank's cost-to-income ratio relatively low at 50% as of December 2019.

NEGATIVE OUTLOOK

FNB Namibia's negative outlook reflects the change to negative in the outlook of the Namibian sovereign rating. Like its domestic peers, FNB Namibia's direct exposure to the sovereign through government securities holdings for capital and liquidity requirements is high at 16% of the bank's total assets, corresponding to 147% of total shareholders' equity as of December 2019, and linking its creditworthiness to that of the sovereign. As a result, the negative pressure on the sovereign rating translates into weakness in the bank's own creditworthiness.

The negative outlook also reflects the negative outlook on South Africa, where FNB Namibia's parent, FirstRand Limited, is based. FNB Namibia's ratings incorporate our very high expectation of support by its parent, based on FirstRand Limited's 58% indirect ownership of the bank and FNB Namibia's association with FirstRand Limited's brand (including the use of its logos).

The negative outlook also captures the higher risks to the bank's asset quality and profitability due to a more fragile economic environment which will translate in reduced lending activity while increasing risks in the bank's loan portfolio. Moody's expects the Namibian economy to contract by 6.9% in 2020, largely due to the coronavirus-induced disruptions. The slower economic activity will increase the bank's non-performing loans which were 3.3% of gross loans as of December 2019, increasing provisions and reducing profitability.

FACTORS THAT COULD LEAD TO UPGRADE OR DOWNGRADE OF RATINGS

Given the negative outlook, an upgrade of the bank's ratings is unlikely at this stage. However, a stabilisation of Government of Namibia's rating outlook and/or of the outlook on the parent could result in the stabilisation of FNB Namibia's ratings.

FNB Namibia's ratings could be downgraded if Namibia's issuer rating and ceilings are downgraded. The ratings could also be downgraded if the credit profile of FirstRand Limited deteriorates or if we assess that FirstRand Limited's willingness to provide support in future will decline below our current assumptions. In addition, any significant deterioration in the financial profile of FNB Namibia could negatively impact the bank's standalone credit profile and deposit ratings.

LIST OF AFFECTED RATINGS

..Issuer: First National Bank of Namibia Limited

Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed ba2

.... Baseline Credit Assessment, Affirmed ba3

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Long-term Counterparty Risk Assessment, Affirmed Ba1(cr)

.... Short-term Counterparty Risk Rating, Affirmed NP

.... Long-term Counterparty Risk Rating, Affirmed Ba1

.... Short-term Bank Deposits, Affirmed NP

....Long-term Bank Deposits (Foreign Currency), Affirmed Ba3, Outlook Changed To Negative From Stable

....Long-term Bank Deposits (Local Currency), Affirmed Ba2, Outlook Changed To Negative From Stable

Outlook Actions:

....Outlook, Changed To Negative From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Peter Mushangwe
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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