The GCR Financial Institutions Sector Risk Assessment
The Financial Institutions sector risk score (ranging from 0 to 15) is a key factor in the operating environment component score. The core of the GCR Ratings Framework is based on GCR’s opinion that an entity’s operating environment largely frames its creditworthiness. As a result, the operating environment analysis anchors the underlying risk score for the GCR rating methodology. GCR combines elements of the country risk and sectoral risk analysis, blended across countries for entities operating across multiple jurisdictions, to anchor an insurer to its current operating conditions. For more details on any of the above, please read the related criteria and research listed below.
GCR will periodically publish updated “Financial Institution Sector Risk Scores”, which will supersede previous publications. The publication titled “GCR Financial Institutions Sector Risk Scores, 23 June 2021”, available at https://gcrratings.com/risk-scores/, supersedes the article published on 15 June 2021.
Financial Institutions sector risk scores
South African Financial Institutions Sector Risk score: ‘7.5’. Country Risk Score 7.0[1], Mapping Table 7.0 to 7.5
The Financial Institutions Sector Risk score of 7.5 balances the ongoing positive characteristics that GCR believes will continue to support sector wide strength and stability as the country gradually moves towards a post pandemic recovery. Positive factors include the good regulatory frameworks that underpins the system’s stability and demonstrated track record of the big banks in managing risk through severe downturns by sustaining capital strength through risk management practices that ultimately ensured adequate profitability to preserve the existing balance sheet buffers. We also believe that targeted stimulus measures were able to stave off a liquidity crunch in the financial sector and support the good build-up of liquidity buffers which will continue to support credit extension over the next 12-18 months. Overall, asset quality was undoubtedly impacted in 2020 and the bulk of the banks put through significant provisions in the first half of the year to cater for the potential negative impact on credit quality. Subsequently, the loan portfolio showed more resilience than expected in the second half of the year as hard lockdowns were eased and economic activity slowly normalised. As such, year end results were robust in the context of the environment, and the sector is expected to report further improvements in profitability in 2021 and 2022, although there may be some tail effects of the pandemic on asset quality as some hard hit sectors will not be able to fully recover.
Analytical contacts
Analyst
Corné Els
Senior Financial Institution Analyst
Johannesburg, ZA
CorneE@GCRratings.com
+27 11 784 1771
Analyst
Vinay Nagar
Senior Financial Institution Analyst
Johannesburg, ZA
Vinay@GCRratings.com
+27 11 784 1771
Analyst
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 Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2021
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CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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