Johannesburg, 31 May 2016 — 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 local currency rating assigned to Standard Bank of South Africa Limited of BBB; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit ratings to Standard Bank of South Africa Limited (“SBSA”, “the bank”) based on the following key criteria:
The ratings of SBSA reflect its leading position in the domestic market and resilient financial performance in F15, despite a challenging operating environment (characterised by low economic growth and increased regulation). SBSA’s ratings also reflect its key status within Standard Bank Group Limited (“SBG”) – Africa’s largest banking group with approximately R2tn in assets and a presence in 20 countries across sub-Saharan Africa – which has a strategic partnership with the Industrial and Commercial Bank of China (“ICBC”), the largest bank in the world by total assets.
The ‘Stable’ rating outlooks reflect GCR’s expectation that the bank will maintain its position as South Africa’s largest bank, given its ability to leverage its size and scope to compete for opportunities, together with high barriers to entry which provide some protection from competition. In addition, based on its sound track record, we expect the bank’s asset quality, capitalisation, liquidity and profitability to remain relatively stable over the short to medium term.
The bank remains well capitalised, with a total capital adequacy ratio of 15.3% at FYE15 (FYE14: 15.8%; FYE13: 16.5%), which was above the regulatory minimum of 10% and the industry average of 14.1%. However, higher risk-weighted assets and slowing internal capital generation have resulted in capital adequacy ratios declining since F13, as the bank moves towards full Basel III implementation in 2019.
Despite the difficult economic conditions, the bank’s earnings performance (as measured by ROaE and ROaA) has remained consistent over the past three years. ROaE was 14.4% in both F15 and F14 (F13: 14.1%), while ROaA has been 1.1% since F13. The bank’s cost to income ratio has risen from 54.5% in F12 (F13: 56.0%; F14: 56.6%) to 58.8% in F15, as a result of its investments in staff and IT infrastructure. It should be noted that SBSA’s cost ratios are slightly elevated given that it bears some costs that relate to SBG.
As a consequence of high levels of indebtedness, poor employment prospects, increased interest rates and weak confidence levels in the South African market, the bank’s wholesale credit growth continued to outpace retail advances. Net loans and advances (including bank placements) increased by 14.2% to R897.3bn at FYE15, with personal and business banking reporting growth of 4.4% compared to corporate and investment banking growth of 25.6%. The bank’s impaired loans ratio decreased to 3.5% at FYE15 (FYE14: 3.7%) from 3.9% at FYE13, on the back of enhanced collection strategies and the application of a prudent approach to credit origination.
The bank’s funding base grew by 9.3% at FYE15, and is considered stable and diversified. During F15, the bank maintained an average liquidity coverage ratio (“LCR”) of 82.1%, which was comfortably in excess of the minimum regulatory requirement of 60% for 2015.
Given the challenging operating conditions in South Africa, there is currently limited upside potential for SBSA’s ratings. Downward pressure on SBSA’s ratings could stem from further deterioration in macroeconomic conditions, which could adversely affect its credit quality, capital base and earnings power.
The ratings above are unsolicited and accorded based on publicly available information.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATING HISTORY|
|Initial rating (June 2001)||Initial rating (May 2013)|
|Long-term: AA(ZA); Short-term: A1(ZA)||Long term (International LC): BBB+|
|Outlook: Stable||Outlook: Stable|
|Last rating (December 2015)||Last rating (December 2015)|
|Long-term: AA+(ZA); Short-term: A1+(ZA)||Long-term (International LC): BBB|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Kurt Boere||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2016
South Africa Bank Bulletin (May 2016)
SBSA rating reports (2001-15)
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, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; 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 ratings included:
- Audited financial results as at 31 December 2015 (and four years of comparative numbers)
- Banking sector information (as supplied in the BA900 Reserve Bank of South Africa reports)
- Industry comparative data
- 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||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 (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Basel||Basel Committee on Banking Supervision housed at the Bank for International Settlements.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|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.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|National Scale Rating||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.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
For a detailed glossary of terms utilised in this announcement please click here
GCR affirms Standard Bank of South Africa Limited’s rating of AA+(ZA); Outlook Stable.