Announcements

GCR affirms Investec Bank Plc’s rating of BBB+; outlook Stable

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.

RATING RATIONALE

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
Outlook: Stable
Last rating: (Nov/2013)
Long term: BBB+; Short term: A2
Outlook: Stable
ANALYTICAL CONTACTS
Primary Analyst
Jennifer Mwerenga
Senior Analyst
+27 11 784 1771
jennifer@globalratings.net
Committee Chairperson
Dirk Greeff
Head: Financial Institution Ratings
+27 11 784 1771
dgreeff@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

GCR’s Global Master Criteria for Rating Banks and Other Financial Institutions
Bank Assessment Principles (2013)
Previous Rating Reports (up to 2013)

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.