Johannesburg, 08 July 2021 – GCR Ratings (“GCR”) has affirmed Standard Bank of South Africa’s unsolicited national scale long and short-term issuer ratings of AA+(ZA)/A1+(ZA), with a Negative Outlook. At the same time, the unsolicited international scale long-term issuer rating has been affirmed at BB, the Outlook was revised to Negative. GCR has also assigned a short-term international scale rating of B.
|Rated Entity||Rating class||Rating scale||Rating||Outlook/Watch|
|Standard Bank of South Africa Limited||Long Term issuer||National||AA+(ZA)||Negative|
|Short Term issuer||National||A1+(ZA)|
|Long term issuer||International||BB||Negative|
|Short Term issuer||International||B|
The unsolicited international and national scale ratings on Standard Bank of South Africa (“Standard Bank”) reflect the strengths and weaknesses of the Standard Bank Group Limited (“the group”), a large and diverse financial institution domiciled in South Africa. Standard Bank is regarded as the core operating entity within the group and accounts for around 76.8% of group assets. Accordingly, the ratings of Standard Bank are equalised to the group Anchor Credit Evaluator.
The group’s credit profile is underpinned by its strong competitive position, adequate capital and asset quality in comparison with aligned peers. The risk position is regarded as intermediate especially observed from the financial year end 2020, whilst funding and liquidity is regarded as average with a high degree of reliance on deposit and wholesale funding.
The group’s competitive positioning benefits from its strong local footprint, with domestic assets representing around 24.0% of total industry assets at December 2020. The oligopolistic sector structure prevents aggressive competitive pressure which is beneficial for pricing and earnings stability, as reflected by historically strong and consistent profit margins although the net interest margin has declined by 0.61% for FY2020. The group also has exposure across the African continent (outside of South Africa) and an International (UK) exposure which supports geographic diversification.
The group is adequately capitalised, with the GCR total capital ratio expected to trend within a range of 12.1%-12.5% over the next 12-18 months which is aligned to our expectations for peers. This is likely to be supported by a recovery of earnings on the back of our expectations that interest rates may begin to rise in the latter part of the year, moderation of credit losses, and increased transaction volumes coupled with new originations. Dividends are expected to resume from August 2021 albeit below historic levels. Asset quality is considered to be in line with peers. The reported credit losses for the group at December 2020 was 1.51% (0.68% at December 2019), with Personal and Business Banking at 2.13% (0.89% at December 2019) and Corporate and Investment Banking at 0.59% (0.32% at December 2019). GCR think the credit losses will moderate to 1.0% to 1.2% for the full year 2021, primarily due to easing of the operating environment pressure and increased loan and transaction volumes.
Funding and liquidity are considered to be good. The group is exposed to the same structural funding risks of the other top tier South African banks, i.e., medium-term wholesale funding concentrations with the financial corporates. The group reported a Net Stable Funding Ratio (“NSFR”) of 123.3%. Complimenting this, is the sound liquidity position, with a group reported Liquidity Coverage Ratio (“LCR”) of 141.2% at March 2021.
The national scale negative outlook is based on the weakening of asset quality and diminished earnings capabilities. Risk management is adequate whilst earnings are expected to improve, however the full effect of the pandemic may still have a bearing on the before mentioned factors. The Negative outlook on the international scale factors in the uncertainty of the operating environment, which could negatively impact the country and sector risk scores causing a downgrade to the ratings.
GCR would review the national scale outlook should there be an improvement of asset quality and earnings, whilst maintaining adequate capital and liquidity ratios. An upward movement of the national scale rating is limited. Negative rating action would follow for the international scale ratings should there be a lowering of the operating environment score, coupled with a further weakening of asset quality, earnings and the GCR capital ratio and liquidity ratios.
|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 Rating Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, July 2021|
|GCR Financial Institutions Sector Risk Score, June 2021|
Standard Bank of South Africa Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long Term issuer||Initial||National||AA(ZA)||Stable||June 2001|
|Short Term issuer||Initial||National||A1(ZA)||N/a||June 2001|
Risk score summary
|Rating Components & Factors||Risk scores|
|Country risk score||6.75|
|Sector risk score||7.50|
|Management and governance||0.00|
|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 rating process 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 not been disclosed to Standard Bank of South Africa. The ratings were unsolicited, and therefore, GCR has been not been compensated for the provision of the ratings.
Standard Bank of South Africa did not participate in the ratings process, however the quality of public disclosure from audited accounts and risk management booklets, alongside regulatory returns, meets our information sufficiency requirements.