Johannesburg, 27 Feb 2014 – Global Credit Ratings has today affirmed the long term and short term international scale issuer ratings assigned to Investec Bank Plc of BBB+ and A2 respectively; with the outlook accorded as Stable. The rating(s) are valid until 11/2014.
Global Credit Ratings has accorded the above credit rating(s) on Investec Bank Plc based on the following key criteria:
During 2013, Investec Bank Plc (“IBP” or “the bank”) announced a strategic restructuring of its loss making Australian operations. As part of the restructuring process, Investec Australia would be transformed into a boutique operation focusing on Corporate Advisory, Property Funds, Aviation, Commodity and Resource Finance, Project Finance, Corporate and Acquisition Finance, and Financial Markets. IBP also announced that alternatives for the Professional Finance and Asset Finance and Leasing divisions include a possible sale, a joint venture with an appropriate supportive partner, or continuing with current operations. The sale process is ongoing with no significant developments to date, although the bank’s management advised there was a number of interested parties.
On the back of the business reorganisation, IBP recorded a profit before tax of £20.4m for the 6 months ended 30 September 2013, down 25.0% from the £27.2m in the previous corresponding period, largely reflecting the losses recorded in the Australian operations. Total assets declined marginally (4.5%) to £20.4bn as at 1HF14. Investec Bank Australia Limited (“IBAL”) contributed 13.9% (1HF13: 15.5%) of IBP’s total assets and recorded an operating loss of £13.9m for 1HF14. IBAL’s weak earnings performance as at 1HF14 was due to higher impairment charges and redundancy costs as the Australian subsidiary down scaled its operations. Accordingly, fee and commission income from corporate, institutional and advisory services declined by 67% to £5.0m, while income from private client’s transactional fees grew by 93.3% to £12.3m. Operating expenses remain high due to the restructuring costs with about 80 job cuts effected as at 30 September 2013.
Overall, IBP’s capitalisation remains adequate, with the core Tier 1 ratio and total risk weighted capital adequacy (“RWCA”) ratio amounting to 11.1% (FYE13: 11.1%) and 15.9% (FYE13: 16.1%) respectively as at 1HF14. Asset quality improved slightly, with gross default loans as a percentage of gross core advances decreasing to 5.6% as at 1HF14 from 6.0% as at FYE13. Arrears coverage increased marginally to 39.6% as at 1HF14 (FYE13: 38.4%), while the remaining exposure is covered by the fair value of collateral held (effectively neutralising any possible portfolio losses albeit making the bank vulnerable to a fall in collateral values). The bulk of loan defaults (about 79%) were in private banking, mainly the residential and commercial property portfolios, with lending collateralised by the underlying real estate. Net default loans amounted to 15.2% of capital (FYE13: 16.5%) over the same period.
The stable outlook reflects GCR’s opinion that the tail risk remaining in the bank’s loan book has been reduced through provisions and recoveries, to the extent that they are unlikely to put material pressure on the bank’s capitalisation.
Positive rating movement/s: Successful divestment of loss making units in the Australian operations and significant improvement in asset quality, profitability, internal capital generation and efficiency ratios would be positively considered.
Negative ratings movement/s: The recent announcement to restructure IBAL, which has contributed to the deterioration in the bank’s financial performance creates uncertainty on the outcome of options being explored to dispose some Australian business units. The ratings will be sensitive to a sudden weakening in asset quality indicators, long-term earnings or a material reduction in capital from current levels given the exposure to some high risk areas. Other pressure points include the impact of new regulations on banks’ business and/or operational models over the medium term.
|INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2000)|
|Long term: A-; Short term: A2|
|Last rating: (Nov/2013)|
|Long term: BBB+; Short term: A2|
|+27 11 784 1771|
|Head: Financial Institution Ratings|
|+27 11 784 1771|
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