GCR has affirmed FirstRand Bank Limited’s national scale ZAR currency long-term rating at AA (double A) and its short-term rating at A1+ (single A one plus). The accorded ratings reflect the bank’s established franchise value, improving asset quality/performance indicators and risk appropriate capital cushioning. These are, however, partially offset by the uncertainties surrounding a stable and continuing global economic recovery- given the impact of a regression on Africa.
Despite its impact being nothing more than theoretical at present, the plethora of regulatory changes now being finalised must be kept in mind. The basic items here include: capitalisation – the proposed changes touch on what can be classified as capital, as well as how much is needed (to be boosted by the addition of a capital conservation, procyclicality and countercyclical buffer); liquidity – details a strong preference for longer-dated funding to increase banks’ short-term resilience (to be monitored by the net stable funding and liquidity coverage ratio); other risk measures – improved monitoring and limitations on leverage, counterparty exposures and provisioning models; oversight – several matters have been tabled by the treasury, although which proposals will stay is still unclear. Naturally, the banking sector’s readiness for all these changes should be tracked for any risk assessments.
Although posting a definite improvement in portfolio quality, the differences between the underlying banking books have to be considered – this due to the variable effect of economic stress on different client segments and distinctive behavioural responses. The retail, Africa and commercial books benefitted from stronger collections (both current and post-write off), slower flows into arrears categories, and the bank’s willingness to restructure rather than repossess assets in its secured portfolios. Conversely, the capital unit showed some deterioration due to conservative mark-to-market valuation adjustments in the private equity portfolios.
Reflecting the challenges brought by a still depressed environment, as well as the bank’s own conservative strategy, real revenue growth was restricted to only a few income statement lines – albeit, the diversified nature of the bank’s revenue streams, as well as lower impairments, has helped to grow bottom line profits. Looking forward, earnings fundamentals remain mixed and should stay as such until the local economy recovers completely.
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