Johannesburg, 20 Nov 2013 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to FirstRand Bank Limited 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 FirstRand Bank Limited; with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on FirstRand Bank Limited based on the following key criteria:
The accorded ratings reflect FirstRand Bank Limited’s (“FirstRand” or “the bank”) established franchise value, expanding geographic footprint, improving asset quality and performance, and risk appropriate capital cushioning. These are however, partially offset by shifts in both global and domestic risk dynamics, which continue to negatively impact the local economy.
FirstRand is a wholly-owned subsidiary of FirstRand Limited, a global portfolio of leading franchises, with a total asset base of R870bn. Still, FirstRand represents the activities of First National Bank, Rand Merchant Bank and WesBank Asset Finance (thus also serving as a controlling/holding company).
Despite the bank’s high systemic importance and the South African government’s supportive stance toward the domestic banking sector, the sovereign’s capacity to provide extraordinary support has diminished.
The bank remains well capitalised in the current environment, benefiting from strong internal capital generation, through retained earnings and the add-back of reserves under Basel III. Furthermore, the bank’s capital adequacy metrics were well above regulatory and internal floor minima’s.
Asset quality improved, with arrears trending down since its peak in F09. This was largely a result of the low interest rate environment and the bank’s comprehensive credit risk processes.
Despite the adversarial operating climate, the bank managed a positive performance; on a segmented basis, the bank’s profit centres grew headline earnings by 16% year-on-year – retail and commercial banking operations benefited from higher loan and deposit growth, risk based pricing and transactional volumes (across all platforms, particularly electronic), whilst corporate and investment banking activities reported an uptick in non-funded income, mainly through knowledge-based fees. Overall, all three operating units achieved strong top line growth and profitability.
The bank’s fragile operating environment increases the error margin on all forward looking scenarios. This, combined with sovereign linked risk, makes an upgrade unlikely.
The ratings will be sensitive to a slide in asset quality, long-term earnings and/or a decline in capital levels.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Dec/2010)|
|Long term: AA(ZA); Short term: A1+(ZA)|
|Last rating (Nov/2012)|
|Long term: AA(ZA); Short term: A1+(ZA)|
|Primary Analyst||Secondary Analyst|
|Dirk Greeff||Kurt Boere|
|Sector Head: Financial Institution Ratings||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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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; c.) such rating was an independent evaluation of the risks and merits of the rated entity; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
FirstRand Bank Limited did not participate in the rating process, though GCR is satisfied that the public information available was sufficient.
The credit ratings above were disclosed to FirstRand Bank Limited with no contestation of/changes to the ratings.
The information required to analyse FirstRand Bank Limited and accord the credit rating(s) typically encompasses latest audited financial statements (plus four years of comparative numbers), June 2013 public accounts and banking sector information (as supplied in the BA900 Reserve Bank of South Africa reports).
The ratings above are unsolicited and accorded based on publicly available information.