Johannesburg, 21 May 2014 — Global Credit Ratings has affirmed the national scale ratings assigned to Nedbank Limited of AA(ZA) and A1+(ZA) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale rating assigned to Nedbank Limited of BBB; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Nedbank Limited based on the following key criteria:
The accorded ratings reflect Nedbank Limited’s (“the bank”) improving asset quality and performance, risk appropriate capital cushioning, stable and experienced management team, and strong shareholder capacity. These are however, partially offset by shifts in both global and domestic risk dynamics, which continue to negatively impact the local economy.
By adding R3bn of new-style Tier II capital, and given its organic earnings growth, the bank’s capital position strengthened and remained well above the Basel III regulatory capital minima.
The bank bumped up provision cover and reduced its exposure to higher-risk products, such as personal loans and home loans, in anticipation of the effects of the systemic risk of high industry unsecured lending growth rates in preceding years and increasing consumer indebtedness. Despite higher defaults in certain product categories, most notably unsecured lending and small businesses, given the weak global and local economic environment, portfolio health displayed a structural improvement over the period, placing the bank in a stronger position ahead of the rising interest rate cycle.
Despite strong competition from existing and non-traditional market players, as well as the complexity and challenges of increased regulation, the bank continued to build and grow its franchise value, delivering headline earnings growth of 11.3% to R7.2bn. The bank’s financial performance was fundamentally driven by the execution of its key strategic focus areas, namely repositioning retail, portfolio tilt, rest of Africa, and growing non-interest revenue. Moreover, the bank benefitted from diverse earnings streams relating to its clusters, with the wholesale and wealth clusters producing strong earnings growth rates and high ROEs, while retail and business banking were impacted by higher impairments.
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 at this stage.
The national scale ratings will be sensitive to a deterioration in asset quality, long-term earnings (on the back of a constrained economic environment) and capital from its current level. Furthermore, the international scale rating will be sensitive to changes in the sovereign rating of the country.
For a detailed glossary of terms utilised in this announcement please click here
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2010)||Initial/last rating (Jul/2013)|
|Long term: AA(ZA); Short term: A1+(ZA)||Long term: BBB|
|Outlook: Stable||Outlook: Stable|
Last rating (Jul/2013)
Long term: AA(ZA); Short term: A1+(ZA)
Junior Credit Analyst
Sector Head: Financial Institution Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Banking Criteria (updated 2014) South Africa Bank Bulletin (2013)
Previous Rating Reports (up to 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. 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; 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.
Nedbank 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 Nedbank Limited with no contestation of/changes to the ratings.
The ratings above are unsolicited and accorded based on publicly available information.
The information required to analyse Nedbank Limited and accord the credit rating(s) typically encompasses the December 2013 audited financial statements (plus four years of comparative numbers) and banking sector information (as supplied in the BA900 Reserve Bank of South Africa reports).