Johannesburg, 24 May 2013 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to ABSA Bank of AA+(ZA) and A1+(ZA) respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has assigned an initial international scale rating of BBB+ to ABSA Bank; with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on ABSA Bank based on the following key criteria:
Absa Bank Limited is a wholly owned subsidiary of Absa Group Limited and is one of South Africa’s largest financial services organisations. During 2012, the bank acquired the Edcon Proprietary Limited (Edcon) consumer credit portfolio, a deal designed to expand the bank’s footprint and grow its customer base. The bank also acquired 8 Barclays businesses throughout Africa as part of its Africa expansion strategy.
The bank maintained its strong capital adequacy position, with the total capital adequacy ratio ending the period at 17.5% (well above internal and regulatory benchmarks). The bank issued R5bn subordinated debt during the year, qualifying as Tier 2 capital.
The bank’s asset quality came under pressure once more, dragged down by the performance of its property portfolios, emanating largely from the residential mortgage and commercial property units. The bank cleaned up its loan book and increased its provision coverage. The net result being a reduction in reported impairments and a more favourable year-end asset quality position.
Earnings for the year decreased by 7.8% to R7.6bn, mainly due to a rise in impairment losses and a reduction in funded income. Consequently, both ROaA and ROaE came in lower at 1% and 13.9%, compared to the 1.1% and 16.3% reported in 2011.
As Absa’s fundamentals are in somewhat of a transition phase, an upgrade at this point in time is deemed unlikely. The ratings will be sensitive to any weakening in asset quality indicators, long-term earnings (on the back of an uncertain economic environment), or a material decline in capital from current levels. Other pressure points include the impact of new regulations on expenses, business and operational models over the medium term.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Feb/2000)
Long term: AA-(ZA); Short term: A1+(ZA)
Last rating (Oct/2012)
Long term: AA+(ZA); Short term: A1+(ZA)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria For Rating Banks, 2013
The ratings above are unsolicited and accorded based on publicly available information
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ABSA Bank did not participate in the rating process, though GCR is satisfied that the public information available was sufficient.
The credit rating/s has been disclosed to ABSA Bank with no contestation of the rating.
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