Johannesburg, 31 May 2016 — Global Credit Ratings has assigned national scale ratings to Sasfin Bank Limited of BBB+(ZA) and A1-(ZA) in the long and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an international scale local currency rating of BB to Sasfin Bank Limited; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Sasfin Bank Limited (“Sasfin” and/or “the bank”) based on the following key criteria:
The ratings of Sasfin reflect its solid standalone financial strength, sound capitalisation, strong liquidity, good recurring profitability, as well as satisfactory asset quality. However, the bank’s ratings are constrained by its narrow franchise as a small, specialised corporate lender, and lacklustre domestic macroeconomic prospects.
The bank is the chief operating subsidiary of Sasfin Holdings Limited (“the group”) and has an established franchise within the entrepreneurial, institutional, corporate and private wealth markets, servicing businesses/clients in South Africa’s major cities. Going forward, the recent launch of transactional banking services and acquisition of 100% of Fintech Proprietary Limited (“Fintech”) are expected to bolster the bank’s growth plans and penetration of its brand.
While Sasfin’s capital ratios were slightly reduced relative to FYE14 (due to the growth in risk-weighted assets), all regulatory capital minima were significantly exceeded at FYE15. The bank recorded total and Tier 1 capital adequacy ratios of 21.2% and 20.5% respectively at FYE15 (FYE14: 22.9% and 21.1%), against a statutory minimum requirement of 10%. This provides Sasfin with an ample capital cushion for loss absorption, with management indicating that the bank aims to maintain its total capital adequacy ratio above 20%.
Asset quality indicators have broadly improved over the past three years, despite strong advances growth and an increasingly challenging operating environment. The bank has benefited from its commitment to stringent underwriting standards, rigorous post-disbursement monitoring and strong recovery procedures, which have resulted in the gross non-performing loan (“NPL”) ratio declining from 6.4% at FYE12 to 3.9% at FYE15. Impairment coverage ratios have also been enhanced over the years, with the bank posting a pre-collateral specific coverage ratio of 53.7% at FYE15, up from 44.9% at FYE12.
Profits have shown a positive growth trajectory since 2011, primarily driven by strong advances growth and improving asset quality, though to some extent offset by lower margins. In F15, the bank registered ROaE and ROaA of 13.1% and 2.0% respectively (F14: 11.6% and 1.8%). Looking ahead, the group’s and bank’s 1H F16 performance points to another positive full year, but the adverse external operating environment could have a negative impact on the bank’s performance in the medium term.
The bank exhibits increasingly diversified funding (through a continually expanding customer deposit base). A gap analysis of financial assets and liabilities reveals positive cumulative liquidity gaps across all maturities, which minimises liquidity risk. In addition, Sasfin maintains sound liquidity buffers, evidenced by a Liquidity Coverage Ratio (“LCR”) and Net Stable Funding Ratio (“NSFR”) of 381% and 125% respectively at FYE15, both well above the minimum prescribed ratios and well ahead of prescribed implementation dates.
Although the current negative trends in the macroeconomic and credit cycles could impact the bank’s performance, Sasfin seems well positioned to continue to generate positive earnings, while maintaining an adequately capitalised bank and balanced funding structure.
Sasfin’s ratings could benefit from an enhanced market position and profitability while maintaining its solid capitalisation and liquidity metrics. A significant deterioration in asset quality, diminished funding diversification, and a weakened liquidity position and structure, could negatively affect the bank’s ratings.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial/last rating: First time/New rating||Initial/last rating: First time/New rating|
|Outlook: First time/New rating||Outlook: First time/New rating|
|Primary Analyst||Committee Chairperson|
|Kuzivakwashe Murigo||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
South Africa Bank Statistical Bulletin (September 2015)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Sasfin Bank Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Sasfin Bank Limited with no contestation of the ratings.
Information received from Sasfin Bank Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 30 June 2015 (and four years of comparative numbers)
- Group interim results at 31 December 2016
- Budgeted financial statements for 2016
- Latest internal and/or external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative data
The ratings above were solicited by, or on behalf of Sasfin Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Arrears||An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.|
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Basel||Basel Committee on Banking Supervision housed at the Bank for International Settlements.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Collateral||Asset provided to a creditor as security for a loan.|
|Default||Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Guarantee||An undertaking in writing by one person (the guarantor) given to another, usually a bank (the creditor) to be answerable for the debt of a third person (the debtor) to the creditor, upon default of the debtor.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Margin||The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Net Interest Margin||Net interest income divided by average interest earning assets. Measures a bank’s margin after paying funding sources and how successful a bank’s interest-related operations are.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Preference Share||Preference or preferred shares entitle a holder to a first claim on any dividend paid by the company before payment is made on ordinary shares. Such dividends are normally linked to an interest rate and not determined by company profits. Preference shares are normally repayable at par value in the event of liquidation. They do not usually carry voting or pre-emptive rights. Preference shares can be redeemable or perpetual.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
For a detailed glossary of terms utilised in this announcement please click here
GCR accords an initial rating of BBB+(ZA) to Sasfin Bank Limited; Outlook Stable