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Rating Action:

Moody's downgrades the issuer rating of Bidvest Bank Limited following downgrade on the South African sovereign; outlook changed to negative

07 Apr 2020

London, 07 April 2020 -- Moody's Investors Service ("Moody's") has today downgraded to Ba2 from Ba1 the long-term issuer rating of Bidvest Bank Limited. The outlook on the long-term issuer rating has been changed 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 primary driver for today's rating action is the weakening capacity of Bidvest Bank Limited's parent, The Bidvest Group Limited (Bidvest Group), to provide support for the bank in case of need as reflected by Moody's rating action on 4 April 2020 (refer to the Corporate Finance Group's press release (Moody's takes rating actions on South African corporates following sovereign downgrade; https://www.moodys.com/research/--PR_421986). The rating actions also reflect the increasingly difficult operating environment for both banks and corporates in South Africa and, for banks, Moody's decided to lower South Africa's Macro Profile score from 'Moderate' to 'Moderate-' on 31 March 2020.

These actions follow the downgrade of the South African government's issuer rating to Ba1 from Baa3 on 27 March 2020. The driver behind the sovereign rating downgrade is the continuing deterioration in South Africa's fiscal strength and structurally very weak growth, which Moody's does not expect current policy settings to address effectively (refer to the sovereign press release Moody's downgrades South Africa's ratings to Ba1, maintains negative outlook; https://www.moodys.com/research/--PR_420630).

RATINGS RATIONALE

The key driver of today's rating action is the weakening capacity of Bidvest Bank Limited's parent, Bidvest Group Limited, to provide support for the bank in case of need as reflected by Moody's rating action on South African corporates on 4 April 2020. However, Bidvest Bank Limited's ratings continue incorporate our assessment of a very high willingness of parental support given (1) the group's 100% ownership of the bank; (2) Bidvest Bank Limited's association with the Bidvest brand (including the use of both its name and logo); and (3) the relatively low probability that the parent would dispose of its stake in Bidvest Bank Limited because group management believes there are synergies and benefits of a financial services division within the group. Additionally, the Ba2 issuer rating of Bidvest Bank Limited reflects its niche franchise in the foreign-exchange and vehicle leasing business, and its solid financial fundamentals, specifically its resilient capitalisation and adequate liquidity. As of year-end 2019 the bank's reported CET1 ratio and return on assets were 22.8% and 3% respectively, from 20.5% and 3.3% in 2018.

WEAKENING MACRO PROFILE

Today's rating action also reflects the lowering of South Africa's Macro Profile score to 'Moderate-' from 'Moderate' as a result of the increasingly challenging operating environment for banks. The lower Macro Profile score results in a weaker standalone credit profile for South African banks.

The rating agency expects a GDP contraction of 2.5% in 2020 and growth of 1.1% in 2021, significantly below the level required to reduce both high poverty and unemployment levels (29.1%, 2019) materially. As the weak economy strains borrower cash flows and makes it more difficult for borrowers to meet their loan obligations, Moody's expects a deterioration of the banking system's problem loan ratio over the next 12 to 18 months, from their average of 3.9% as of year-end 2019, and declining profitability metrics. However, Moody's expects banks' capitalization to be broadly stable over the next 12 months as pre-provision income should be sufficient to absorb banks' rising loan losses.

South Africa's Macro Profile continues to reflect the funding risks that the South African banking system faces given its high reliance on short-term domestic institutional deposits. Large institutional deposits (including interbank deposits), along with debt securities (primarily held by financial institutions), account for around 31% of the banking system's funding base, and corporate deposits 18%, as of December-end 2019.

Additionally, the unprecedented deterioration in the global economic outlook caused by the rapid spread of the coronavirus outbreak will exacerbate South Africa's economic and fiscal challenges, complicate the emergence of effective policy responses and negatively impact banks' credit profiles through asset quality, profitability and liquidity pressures.

Though operating conditions are challenging, it is important to note that Moody's does not have any particular governance concern for the rated South African banks and does not apply any corporate behaviour adjustments to them.

NEGATIVE OUTLOOK REFLECTS SOVEREIGN OUTLOOK

The negative outlook of Bidvest Bank Limited's issuer rating reflects our expectation that the weak economic environment will increase the downside risks for South African banks' credit profiles. The challenging operating environment will translate to higher impairments for the banks; exerting negative pressure on revenues and testing the resilient performance they have demonstrated in recent years. However, Moody's does not anticipate that the asset quality deterioration will materially compromise Bidvest Bank Limited's capitalisation. The negative outlook on the bank is aligned with the outlook on the sovereign rating, which reflects downside risks around economic growth and fiscal metrics, that could lead to an even more rapid and sizeable increase in the debt burden, further lowering debt affordability and potentially weakening South Africa's access to funding.

NATIONAL SCALE RATINGS (NSR)

There has also been 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.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The bank's ratings could be downgraded if operating conditions worsen, leading to significantly higher loan loss provisions that prompt deterioration in the banks' earnings and capital metrics that exceed the rating agency's expectations. A further deterioration in the capacity of Bidvest Group to provide support for the bank in case of need could also lead to downgrade of the bank's ratings.

Any upwards momentum of the bank's ratings is currently constrained by weak operating conditions in South Africa as reflected by the negative outlook. However, an increase in our assessment of Bidvest Group's willingness to provide support for Bidvest Bank Limited combined with the maintenance of a robust solvency and liquidity profile by the bank, could lead to a rating upgrade for the bank.

LIST OF AFFECTED RATINGS

Issuer: Bidvest Bank Limited

..Downgrades:

....Long-term Issuer Rating, downgraded to Ba2 from Ba1, outlook changed to Negative from Stable

....NSR Long-term Issuer Rating, downgraded to Aa3.za from Aa2.za

..Affirmations:

....Short-term Issuer Rating, affirmed NP

....NSR Short-term Issuer Rating, affirmed P-1.za

..Outlook Action:

....Outlook changed to Negative From Stable

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.

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.

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.

Akin Majekodunmi
VP-Sr Credit Officer
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.
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