Moody's has also affirmed the NSR long-term bank deposit ratings of the five banks
Limassol, November 24, 2020 -- Moody's Investors Service ("Moody's") has today downgraded to Ba2 from
Ba1 the long-term local and foreign currency deposit ratings of
the five largest South African banks: The Standard Bank of South
Africa Limited (SBSA), FirstRand Bank Limited (FRB), ABSA
Bank Limited (ABSA), Nedbank Limited (Nedbank) and Investec Bank
Ltd. (IBL). The rating agency has also downgraded to Ba3
from Ba2 the long-term issuer ratings of two South African holding
companies: Standard Bank Group Limited (SBG) and Absa Group Limited.
Moody's maintains a negative outlook on the above seven entities.
Moody's has also affirmed the Ba2 long-term local currency deposit
rating and the Ba3 long-term foreign currency deposit rating of
First National Bank of Namibia Limited (FNB Namibia), the Namibia-based
subsidiary of South Africa-based FirstRand Limited (the holding
company of FRB). The outlook on FNB Namibia's long-term
ratings remains negative.
Today's rating actions on the five South African banks reflect (i) the
deterioration in the creditworthiness of the South African sovereign,
as indicated by the downgrade of the Government of South Africa's
issuer rating to Ba2 from Ba1. The weakening in the sovereign's
credit profile has direct implications for the banks given their significant
holding of sovereign securities on their balance sheets; and (ii)
the gradual weakening of the banks' standalone credit profiles as
the coronavirus pandemic exacerbates an already challenging operating
environment in South Africa.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL436573
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
-- DOWNGRADES OF DEPOSIT RATINGS REFLECT DETERIORATION OF
THE SOVEREIGN'S CREDITWORTHINESS ALONG WITH WEAKENING STANDALONE PROFILES
One driver for the rating action on the five South African banks is the
deterioration in the creditworthiness of the South African sovereign,
as indicated by the downgrade of the Government of South Africa's
issuer rating to Ba2. The weakening in the sovereign's credit
profile has implications for the banks given the interlinkages between
the sovereign's creditworthiness and the banks' balance sheets.
The big five South African banks' direct and indirect exposure to
the sovereign (including loans to state-related entities) increased
to 200% of their combined capital base as of June 2020, from
176% as of December 2019.
The downgrade in South Africa's sovereign rating reflects the further
expected weakening in South Africa's fiscal strength over the medium
term. The pandemic shock will increase the debt burden and intensify
the country's economic challenges and the social obstacles to reforms.
The crisis will leave long-term scars on South Africa's fiscal
position principally through two channels: a severe loss in revenue
of about 5% of GDP, which the government cannot fully and
quickly compensate through spending cuts, and which will take time
to recover; and rising borrowing costs. Please see "Moody's
downgrades South Africa's ratings to Ba2, maintains negative outlook";
(https://www.moodys.com/research/--PR_436182).
Another driver for today's rating action is the gradual weakening of the
banks' standalone credit profiles as the coronavirus pandemic exacerbates
an already challenging operating environment in South Africa. Moody's
expects the banks' asset quality to deteriorate materially -
systemwide problem loans over gross loans have already increased to 5.0%
in September 2020 from 3.9% in December 2019 and we expect
a further deterioration over the next 12 months. Profitability
also remains under pressure with the systemwide return on assets declining
to 0.62% during the 12 months ending September 2020 compared
to 1.2% in 2019 as a result of increasing provisioning.
More positively, the rating agency expects the South African banks
to continue to maintain solid capital buffers (systemwide CET1 ratio was
12.3% as of September 2020), along with sound funding
and liquidity. Systemwide gross loans to deposit ratio was also
healthy at 89%, while the systemwide liquidity coverage ratio
(LCR) was 147.4% as of September 2020.
In terms of governance considerations, Moody's does not have any
particular governance concern for South African banks.
Details of how these drivers affect the banks' ratings are given
in the bank specific sections below.
-- NEGATIVE OUTLOOKS REFLECT THE NEGATIVE OUTLOOK ON THE
SOVEREIGN RATING
The negative outlook on the South African issuers' long-term ratings
reflects the negative outlook on the sovereign rating, which signals
potential weakening in the South African government's credit strength,
to which the South African banks are exposed.
The negative outlook on the sovereign rating reflects the risks that the
debt burden and debt affordability could deteriorate significantly more
than Moody's currently projects. This partly reflects downside
risks to both growth and the fiscal consolidation, even if modest,
assumed in the baseline. It also reflects the potential for further
financial demands from state-owned enterprises or for higher interest
rates given possible shocks to confidence.
NATIONAL SCALE RATINGS (NSR)
The NSR bank deposit ratings for the banks were affirmed as a result of
a recalibration of South Africa's NSR mappings, triggered by the
downgrade of South Africa's government bond rating. 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.
-- BANK-BY-BANK SUMMARY OF ACTIONS
- The Standard Bank of South Africa Limited (SBSA) and Standard
Bank Group Limited (SBG)
Moody's downgraded SBSA's long-term deposit ratings to Ba2 from
Ba1 and downgraded its BCA to ba2 from ba1. At the same time,
the rating agency has maintained the negative outlook on the bank's long-term
deposit ratings.
The downgrade of SBSA's BCA to ba2 from ba1 reflects the expected
weakening in the bank's asset quality (problem loans over gross
loans increased to 5.2% in June 2020 from 3.9%
in December 2019), combined with pressured profitability due to
elevated provisioning. The bank's net income over tangible
assets declined to 0.04% in H1 2020 from 1.5%
in 2019. More positively the ba2 BCA also reflects the bank's robust
risk-management, combined with sound capital buffers (reported
CET1 ratio was 11.4% as of June 2020). The rating
agency also expects the bank to continue to maintain solid funding and
liquidity (LCR was 117.2% as of June 2020).
Moody's downgraded SBG's long-term issuer ratings to Ba3 from Ba2,
with SBG's issuer rating remaining positioned one notch lower than the
deposit ratings of SBSA. The one-notch downward adjustment
reflects the non-operational nature of SBG (a holding company),
which results in the structural subordination of SBG's unsecured creditors
to the creditors of SBSA.
- FirstRand Bank Limited (FRB)
Moody's downgraded FRB's long-term deposit ratings to Ba2 from
Ba1 and downgraded its BCA to ba2 from ba1. At the same time,
the rating agency has maintained the negative outlook on the bank's long-term
deposit ratings.
The downgrade of FRB's BCA to ba2 from ba1 reflects the expected
weakening in the bank's asset quality (problem loans over gross
loans increased to 5.2% in June 2020 from 4.2%
in December 2019), amid increasingly challenging operating conditions.
More positively the ba2 BCA also captures the bank's strong franchise,
which underpins solid profitability levels that are higher than local
peers. The bank's net income over tangible assets declined
to 1.1% in FY 2020 from 1.8% in 2019.
The BCA also takes into account the bank's solid capital buffers
(reported CET1 ratio was 12.3% as of June 2020, higher
than most local peers), along with continued solid funding and liquidity
(LCR was 124% as of June 2020).
- ABSA Bank Limited (ABSA) and Absa Group Limited (Absa Group)
Moody's downgraded ABSA's long-term deposit ratings to Ba2
from Ba1 and downgraded its BCA to ba2 from ba1. At the same time,
the rating agency has maintained the negative outlook on the bank's long-term
deposit ratings.
The downgrade of ABSA's BCA to ba2 from ba1 reflects the on-going
challenging operating conditions, which have resulted in a weakening
of the bank's asset quality metrics (problem loans over gross loans
increased to 5.7% in June 2020 from 4.5% in
December 2019), combined with pressured profitability due to elevated
provisioning. The bank's net income over tangible assets
declined to a negative 0.3% in H1 2020 from 0.7%
in 2019. More positively the ba2 BCA also captures ABSA's
sound risk management and adequate capital buffers, combined with
solid funding and high liquidity buffers.
Moody's downgraded Absa Group's long-term issuer ratings to Ba3
from Ba2, with Absa Group's issuer rating positioned one notch lower
than the deposit ratings of ABSA. The one-notch downward
adjustment reflects the non-operational nature of Absa Group (a
holding company), which results in the structural subordination
of Absa Group's unsecured creditors to the creditors of ABSA.
- Nedbank Limited (Nedbank)
Moody's downgraded Nedbank's long-term deposit ratings to Ba2 from
Ba1 and downgraded its BCA to ba2 from ba1. At the same time,
the rating agency has maintained the negative outlook on the bank's long-term
deposit ratings.
The downgrade of Nedbank's BCA ba2 from ba1 reflects the on-going
challenging operating conditions and weakening in the bank's asset
quality (problem loans over gross loans increased to 4.6%
in June 2020 from 3.3% in December 2019), combined
with pressured profitability due to elevated provisioning. The
bank's net income over tangible assets declined to 0.3%
in H1 2020 from 0.9% in 2019. More positively the
ba2 BCA also captures the bank's solid local franchise, combined
with adequate capital buffers and continued solid funding and liquidity
(LCR was 117% as of June 2020).
- Investec Bank Ltd. (IBL)
Moody's downgraded IBL's long-term deposit ratings to Ba2 from
Ba1 and downgraded its BCA to ba2 from ba1. At the same time,
the rating agency has maintained the negative outlook on the bank's long-term
deposit ratings.
The downgrade of IBL's BCA to ba2 from ba1 reflects the on-going
challenging operating conditions that pressure the bank's asset
quality and profitability metrics, with the bank's net income
over tangible assets declining to 0.5% for the year-ended
March 2020 (March 2019: 1.0%). More positively
the ba2 BCA also captures the bank's solid capitalisation (reported CET1
ratio was 12.9% as of September 2020) and its sound risk
management and primary focus on high net worth individuals, which
help mitigate rising asset quality pressures. In addition,
Moody's expects the bank to continue to maintain solid funding and
liquidity (IBL's consolidated LCR was 164.1% as of
September 2020).
- First National Bank of Namibia Limited (FNB Namibia)
Moody's affirmed the long-term deposit ratings and BCA of FNB Namibia.
The affirmation of FNB Namibia's Ba2 local currency deposit rating
reflects the affirmation of the bank's ba3 BCA, combined with
the incorporation of one notch of government support uplift based on Moody's
assumption of a high likelihood of support from the Government of Namibia
(Ba2 negative) in case of need.
Following the downgrade in the ratings of South Africa-based FirstRand
Bank Limited (FRB), the very high likelihood of parental support
from FirstRand Limited to FNB Namibia now translates into zero notch of
government support uplift from the bank's ba3 BCA (compared to one notch
previously).
At the same time, the high likelihood of government support now
translates into one notch of government support uplift from the bank's
ba3 BCA (compared to zero notch previously). The high likelihood
of government support reflects the bank's systemic importance to
the local financial system.
The affirmation of FNB Namibia's Ba3 foreign currency deposit rating
continues to reflect the cap from the relevant foreign currency ceiling.
FNB Namibia's BCA of ba3 reflects the expected weakening in the bank's
asset quality (problem loans over gross loans increased to 4.4%
in June 2020 from 3.3% in December 2019), amid challenging
operating conditions due to the coronavirus pandemic. The ba3 BCA
also captures the bank's robust capital (reported CET1 ratio was 15.2%
as of June 2020), combined with solid funding and liquidity.
The negative outlook on FNB Namibia's long-term deposit ratings
is aligned with the negative outlook on the Namibian sovereign's issuer
rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upwards pressure on the South African banks' long-term foreign
currency ratings is limited given the negative outlook. Nonetheless,
a higher sovereign rating could lead to upwards pressure on the banks'
ratings.
Upwards pressure on FNB Namibia's ratings is limited given the negative
outlook. Nonetheless, a higher sovereign rating could lead
to upwards pressure on the banks' ratings.
Conversely, any deterioration in the creditworthiness of South Africa
would exert downward pressure on South African banks' ratings.
In addition banks' ratings could be downgraded in case of a material
deterioration in the banks' solvency and liquidity.
Downward pressure on FNB Namibia's ratings could develop through a deterioration
in the Namibian sovereign's credit profile, or a material deterioration
in the bank's solvency and liquidity.
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.
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_1216309.
The local market analyst for FirstRand Bank Limited, The Standard
Bank of South Africa Limited, Standard Bank Group Limited,
First National Bank of Namibia Limited ratings is Mik Kabeya, +971
(423) 795-90.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link htthttps://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL436573
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Endorsement
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
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.
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.
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.
Constantinos Kypreos
Senior Vice President
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
