Johannesburg, 14 Oct 2013 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale Issuer ratings assigned to Investec 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 Investec Bank Limited; with the outlook accorded as Stable.
RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Investec Bank Limited based on the following key criteria:
Investec Bank Limited’s (“IBL” or “the bank”) is a major operating subsidiary of the international Investec Group of companies, with consolidated equity capital of around £4bn and assets amounting to over £50bn as at 31 March 2013. IBL is the fifth largest bank in South Africa with a market share of 7% in terms of assets as at FYE13. The ratings reflect IBL’s established domestic franchise value, diversified income streams, improving asset quality/performance and risk appropriate capital cushioning. Nevertheless, these are partly offset by a soft local business outlook and the confidence-sensitive nature of IBLs funding. Further, the ratings do not incorporate any systemic support uplift, given the low intervention prospect.
Capitalisation remains strong, with the bank displaying a capital adequacy ratio of 16.2% as at FYE12 (FYE11: 16.1%), calculated in line with Basel III capital requirements, as currently applicable in South Africa. A further improvement was evidenced at FYE13, with impaired loans equating to 2.1% of gross core loans and advances (FYE12: 2.6%). Gross default loans decreased 9.5% to R2.9bn as at FYE13. Net default loans, in turn, amounted to a lower 4.8% of capital over the same period (FYE12: 7.3%). Further, cognisance is taken of the large amount of collateral held against arrears. Despite the uptick in advances, flatter interest margins, higher costs on subordinated debt liabilities and higher growth in operating costs (on the back of inflationary adjustments), kept earnings under pressure for most of the reporting period, evidenced by a 2.3% reduction in profit before tax. The cost ratio increased to 54.8% in F13 from 52.7% in the previous year. Overall, the ROaA and ROaE declined slightly to 8.5% and 0.7% respectively. IBL’s liquidity risk profile is tightly controlled, with liquidity maintained well within internal and regulatory targets.
IBL’s fragile operating environment increases the error margin on all forward looking scenarios. Nevertheless, a sustained improvement in asset quality, capital and earnings would be positively considered. 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. This, combined with sovereign linked risk, makes an upgrade unlikely. 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 (Sep/2000) | |
Long term: AA-(ZA); Short term: A1+(ZA) | |
Outlook: Stable | |
Last rating (Oct/2012) | |
Long term: AA-(ZA); Short term: A1+(ZA) | |
Outlook: Stable | |
ANALYTICAL CONTACTS | |
Primary Analyst | |
Jennifer Mwerenga | |
Senior Analyst | |
+27 11 784 1771 | |
jennifer@globalratings.net | |
Committee Chairperson | |
Dirk Greeff | |
Sector Head: Financial Institution Ratings | |
+27 11 784 1771 | |
dgreeff@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria For Rating Banks, 2013
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/RATING-SCALES-DEFINITIONS. 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.
Investec Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Investec Bank Limited with no contestation of the rating.
The information received from Investec Bank Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.