Johannesburg, 20 May 2015 — Global Credit Ratings has affirmed the national scale ratings assigned to Standard Bank of South Africa 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 Standard Bank of South Africa Limited of BBB+; with the outlook accorded as Negative.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Standard Bank of South Africa Limited (“SBSA” and/or “the bank”) based on the following key criteria:
SBSA’s ratings reflect its intrinsic financial strength, leading position in the domestic market, and ability to leverage its size and scope to compete for opportunities in a transforming South African marketplace.
SBSA is fully integrated with the rest of the Standard Bank Group (“SBG”) and plays a key role in positioning SBG to capitalise on growth in the rest of the African continent. As SBG’s largest business entity, SBSA holds the bulk of the capital resources required to execute SBG’s strategy in Africa. SBSA also provides support to SBG’s operations in the rest of Africa through its deep universal banking knowledge and experience. It should be noted that SBSA’s proportion of costs are slightly elevated given that it bears costs on its income statement that emerge from SBG. The bank’s cost to income ratio was 57% at FYE14 (FYE13: 56%).
Higher risk-weighted assets and slowing growth in qualifying capital resulted in the bank’s total capital adequacy ratio declining to 15.8% at FYE14 (compared to 16.5% at FYE13), still well above regulatory requirements and within internal targets.
The bank’s growth in corporate lending (22%) continued to outpace that of retail (4%), reflective of the difficult and uncertain environment faced by South African households. The asset quality picture remains mixed, with trends being markedly different across individual credit categories. Collectively, the impaired loans ratio has remained flat since FYE12 (at an acceptable c.4%).
The bank reported an increase of 12.3% in headline earnings to reach R12bn in F14, driven by strong net interest income growth of 12.5%, which benefitted from the positive endowment effect of the 0.75% increase in the prime lending rate in 2014; higher fee and commission income of R18.8bn (F13: R17bn); and stable impairment charges.
The bank’s liquidity position remains strong. Its current level of liquidity is appropriate given the bank’s risk appetite, and in view of potential changes in regulatory requirements.
In the year ahead, lacklustre economic conditions are expected to persist, placing sustained pressure on the market and affecting business confidence. However, the bank has demonstrated resilience to a range of macroeconomic scenarios, and is likely to continue to reposition itself in response to the forces that are reshaping the South African banking industry.
Given the challenging operating conditions in South Africa, there is currently limited upside potential for SBSA’s ratings. Downward pressure on SBSA’s national scale ratings could stem from a further deterioration in macroeconomic conditions, which could adversely affect its credit quality, capital base and earnings power. Furthermore, the international scale rating will be sensitive to changes in the sovereign rating of the country.
The ratings above are unsolicited and accorded based on publicly available information.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jun/2001)||Initial rating (May/2013)|
|Long term: AA(ZA)||Long term: BBB+|
|Short term: A1(ZA)||Outlook: Stable|
|Last rating (Jul/2014)||Last rating (Jul/2014)|
|Long term: AA+(ZA)||Long term: BBB+|
|Short term: A1+(ZA)||Outlook: Negative|
|Sector Head: Financial Institution Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
South Africa Bank Bulletin (2014)
SBSA rating reports (2001-14)
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.
The credit rating(s) above were not solicited by, or on behalf of, the rated client, and therefore, GCR has not been compensated for the provision of the rating(s). The ratings were accorded based on publicly available information.
The credit rating(s) above were disclosed to Standard Bank of South Africa Limited with no contestation of/changes to the ratings.
Standard Bank of South Africa Limited did not participate in the rating process, though GCR is satisfied that the public information available was sufficient.
The information used to analyse Standard Bank of South Africa Limited and accord the credit rating(s) included the 31 December 2014 audited financial statements (plus four years of comparative numbers); banking sector information (as supplied in the BA900 Reserve Bank of South Africa reports); and other publicly available information.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Asset quality refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (i.e. being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Audited Financial Statements||Financial statements that bear the report of independent auditors (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|Balance Sheet||Also known as a 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.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|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.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|International Scale Rating||ISRs relate to either foreign currency or local currency commitments, assessing the capacity of an issuer to meet these commitments using a globally applicable (and therefore internationally comparable) scale.|
|Liabilities||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long term||Not current; ordinarily more than one year.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Off Balance Sheet||Off balance sheet items are assets or liabilities that are not shown on a company’s balance sheet. They are usually referred to in the notes to a company’s accounts.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Risk-Weighted Assets||RWAs are determined by applying risk weights to balance sheet assets and off-balance-sheet financial instruments according to the relative credit risk of the counterparty. The risk weighting for each balance sheet asset and off-balance-sheet financial instrument is governed by the respective regulatory authorities.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|