Johannesburg, 21 May 2014 — 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 Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Standard Bank of South Africa Limited based on the following key criteria:
The accorded ratings reflect Standard Bank of South Africa Limited’s (“the bank”) intrinsic financial strength, risk appropriate capital cushioning, established international franchise value, and leading market position in the domestic banking space – though, partially offset by shifts in both global and domestic risk dynamics, which continue to negatively impact the local economy.
The bank maintained strong Basel III capital ratios during the year under review, attributable to internal capital generation and a disciplined use of risk-weighted assets. That said, the group is well positioned to meet the phased-in rising capital adequacy ratios.
Credit impairments increased by 35% to R7.8bn at FYE13, given the continued deterioration within the bank’s personal unsecured, overdraft, revolving credit and business lending portfolios, as customers struggled to service debt – however, non-performing loans and credit losses in the mortgage portfolio continued to decline, on the back of a steady improvement in the residential property market during the year.
Given the significant changes that have taken place in the regulatory environment of late, the bank adapted its business models to comply with the new regulatory reality – personal and business banking’s higher revenues demonstrated the benefits of its focus on transactional banking, and a reduced appetite for unsecured lending, whilst corporate and investment banking experienced a shift in its revenues from capital heavy complex derivative and private equity transactions to flow trades.
In an increasingly challenging economic and regulatory environment, the bank’s headline earnings fell by 7% to R10.7bn, driven by a weaker credit performance and higher operating expenses, which included the amortisation of Information Technology development projects (as these moved into production), particularly in relation to core banking systems.
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 (Jun/2001)||Initial/last rating (May/2013)|
|Long term: AA(ZA); Short term: A1(ZA)||Long term: BBB+|
|Outlook: Stable||Outlook: Stable|
Last rating (May/2013)
Long term: AA+(ZA); Short term: A1+(ZA)
Senior 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.
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 credit ratings above were disclosed to Standard Bank of South Africa 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 Standard Bank of South Africa 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).