Johannesburg, 08 July 2021 – GCR Ratings (“GCR”) has affirmed the South African long and short-term issuer ratings of Sasfin Bank Limited at BBB+(ZA)/A2(ZA). The outlook is Negative. At the same time, the long-term international scale rating has been affirmed at B, Stable Outlook maintained. GCR has also assigned a short-term international scale rating of B.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Sasfin Bank Limited||Issuer Long Term||National||BBB+(ZA)||Negative Outlook|
|Issuer Short Term||National||A2(ZA)|
|Issuer Long Term||International||B||Stable Outlook|
|Issuer Short Term||International||B|
The affirmation of the ratings and outlooks balances the group’s strong capital and liquidity against a relatively weak risk and competitive position and moderate funding structure.
Capital and leverage is a positive ratings factor, reflected by the strong GCR total capital ratio of 17% as at 31 December 2020. GCR expects the ratio to remain within a strong range of between 15% to 17% over the next 12-18 months due to expected loan book (and subsequently risk weighted asset) contraction and an improvement in earnings as credit losses normalise and core revenue drivers stabilise.
The funding and liquidity assessment is ratings neutral. The bank’s core deposits (except for Insurance, Pension and Private financial corporate sectors) as a percentage of total deposits was 73.8% at 31 December 2020. Depositor concentrations are higher than the larger banks but have displayed stability under a depositor flight to safety during 2020. Funding and Liquidity is assisted by Sasfin’s South African Securitisation Programme (RF) Limited, more so given the recent increase of the Net Default trigger of Series 1 and Series 3 which pre-empted the current stressed environment, especially due to impaired recovery of foreclosed assets. Liquidity is further supported by the short tenor of the loan book and lower repurchase agreements, which more than halved from June 2020 to December 2020. The bank also maintained exceptional regulatory liquidity metrics, with a Liquidity Coverage Ratio (“LCR”) of 259.6% at 31 March 2021 (245.1% at December 2020) in comparison to the required minimum of 80%.
The Group’s competitive position is regarded as modest across the four operating segments, namely Asset Finance, B\\Yond Business Banking, Capital and Wealth. The Asset Finance business is by far the largest income and profit contributor, albeit with moderate exposures to the more sensitive and somewhat vulnerable Small Medium and Micro Enterprises (“SMME”) sector at c.60%. A key competitive advantage of Asset Finance is the supplier relations, most of which were retained. The Wealth business continues to support good revenue stability and diversity, contributing 28.5% to segmented income at December 2020. Positively, the Group managed to decrease the Cost-to-Income ratio to 70.5% and is expected to remain largely unchanged over the next 12 month period.
The bank’s risk position is a negative ratings factor given its core client base, sector concentrations and high credit losses. The Credit Loss Ratio (“CLR”) increased in excess of GCR’s expectations of 2.0% peaking at 3.0% in June 2020 and remaining elevated at 2.4% in December 2020. The CLR for Sasfin Bank Limited and its subsidiaries were reported at 1.63%, whilst the CLR for Sasfin Bank Limited were reported at 2.08% for 31 March 2021. Non-performing Loans (“NPLs”) increased from 10.3% at June 2020 to 11.2% at December 2020. Foreign exchange exposure is limited to 5.2% of liabilities. Loan concentrations continue to decrease with the top 20 exposures accounting for 13.9% of total loans.
The outlook on the national scale ratings is negative as we anticipate the challenging operating environment could exert further pressure on asset quality over the next 12-18 months, particularly in view of the underlying market segments in which the group operates. Credit losses are expected to remain above 2%, while NPLs could also stay elevated at above 10%. Nonetheless, we think capital could be sustained at positive levels, but there could be some dilution of existing buffers should earnings not stabilise. As such, GCR capital is expected to be around 16.0%.
Upward movement on the international scale ratings are limited given pressure in the operating environment. The national scale rating outlook may revert to stable should there be a material improvement in asset quality. Over the medium term, upward ratings movement on the national scale could stem from sustained improvement in asset quality and earnings that could support a strong GCR total capital ratio, while maintaining exceptional liquidity. The international scale ratings could be downgraded if the operating environment score is lowered, while downward rating pressure on the national scale ratings could emanate from weaker than expected capital and liquidity or any further deterioration in asset quality and erosion of liquidity buffers.
|Primary analyst||Corné Els||Senior Financial Institutions Analyst|
|Johannesburg, ZA||CorneE@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Financial Institutions, May 2019|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, July 2021|
|GCR Financial Institutions Sector Risk Score, June 2021|
Sasfin Bank Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long Term issuer||Initial||National||BBB+(ZA)||Stable||May 2016|
|Short Term issuer||Initial||National||A1-(ZA)||N/a||May 2016|
Risk score summary
|Rating Components & Factors||Risk scores|
|Country risk score||7.00|
|Sector risk score||7.50|
|Management and governance||0.0|
|Capital and Leverage||0.50|
|Funding and Liquidity||0.00|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to the rated entity.
The ratings of the following entities were solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings.
Sasfin Bank Limited participated in the rating process via teleconference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the entities and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2020;
- Interim Results as at 30 June 2021;
- Budgeted financial statements from July 2021 to May 2022;
- Latest internal and/or external audit report to management; and
- A breakdown of facilities available and related counterparties.