Announcements Financial Institutions Rating Alerts

GCR releases the Ratings on seven South African Bank’s under its new criteria

Rating Action

Johannesburg, 13th August 2019 – GCR Ratings (“GCR”) has reviewed the ratings on seven South African Banks under the recently released Criteria for Rating Financial Institutions, May 2019.

On May 22, 2019 GCR announced that it had released new criteria for all banks and bank-like entities. This methodology is titled Criteria for Rating Financial Institutions. As a result, all affected ratings were placed ‘Under Criteria Observation’.

Subsequently, GCR has finalised the first wave of South African Financial Institution reviews under this new methodology. As a result, the ratings below have been removed from ‘Under Criteria Observation’ and the ratings revised in line with the new methodology.

The following financial institutions were included in this review:

  1. Absa Bank Limited: long and short-term unsolicited South African national scale ratings have been affirmed at AA(za)/ A1+(za). At the same time, the long-term unsolicited international scale ratings have been revised to BB from BB+, due to a change in the mapping methodology (see the Criteria for the GCR Ratings Framework). The outlooks are Stable.
  2. First Rand Bank Limited: long and short-term unsolicited South African national scale ratings have been affirmed at AA+(za)/ A1+(za). The long-term unsolicited international scale ratings have been affirmed at BB+. The outlooks are Stable.
  3. Grindrod Bank Limited: long and short-term South African national scale ratings have been affirmed at BBB+(za)/ A2(za). The long-term international scale ratings have been affirmed at B+. The outlooks are Stable.
  4. Investec Bank Limited: long and short-term South African national scale ratings have been affirmed at AA(za)/ A1+(za). At the same time, the long-term international scale ratings have been revised to BB from BB+, due to a change in the mapping methodology (see the Criteria for the GCR Ratings Framework). The outlooks are Stable.
  5. Nedbank Limited: long and short-term unsolicited South African national scale ratings have been affirmed at AA(za)/ A1+(za). At the same time, the long-term unsolicited international scale ratings have been revised to BB from BB+, due to a change in the mapping methodology (see the Criteria for the GCR Ratings Framework). The outlooks are Stable.
  6. Sasfin Bank Limited: long term South African national scale ratings have been affirmed at BBB+(za). At the same time, the short-term rating has been revised to A2(za), due to a change in the rating definitions, see Rating Scales, Symbols and Definition for more information. The long-term international scale ratings have been affirmed at B+. The outlooks are stable.
  7. Standard Bank of South Africa: long and short-term unsolicited South African national scale ratings have been affirmed at AA+(za)/ A1+(za). The long-term unsolicited international scale ratings have been affirmed at BB+. The outlooks are Stable.

Rating Rationale

The below ratings all factor in the following core elements of South African Country and Financial Institutions Sector risk into their assessments. However, depending on the geographic exposures of the banks, the blending of country and sector risk may differ for each rated entity (See the Risk Score Summary Below).

Republic of South Africa, Country Risk Score: 7.5, Mapping Table 7.5 to 8.0

The South Africa country risk score of ‘7.5’ reflects GCR’s expectations that GDP per capita will range between US$6,000 and US$6,500 over the next 12-18months, balancing slow economic growth with stable population growth and a broadly stable local currency. It also factors in institutional scores in the middle of the range, supported by voice & accountability and regulatory quality, macro-economic stability, infrastructure and the strengths of the financial system. Corruption and politics, innovation and health are the detracting elements of institutional strength for the country. GCR has made a small positive adjustment to the initial score, balancing the size and diversification of the South African economy versus regional peers and strong monetary policy flexibility against the deteriorating fiscal position of the government and high-profile state-owned enterprises (‘SOEs’).

South African Financial Institutions Sector Risk Score: 8

The South African financial institutions sector risk score of 8 is the highest in the Africa region. It is supported by the oligopolistic structure of the system, with the top five banks controlling around 90% of total assets. The top tier banks have good levels of diversification, by business line and extended franchises across the Africa region. Generally, they are adequately capitalised and profitable. We expect return on equity to range between 15.5% and 16.5% in the next 12-18months. We consider regulation and supervision to be strong in a regional context, generally being early adopters of international best practice. Nevertheless, private sector debt and especially household debt is relatively high in comparison to other emerging markets and for the wealth levels of the country. Positively, there is a low amount of foreign currency lending. We expect credit losses of the major banks to range between 1-1.5% over the next 12-18months. One of the key weaknesses of the system is the short to medium term funding concentrations, created by dominant role of institutional money managers in contractual savings. Capital markets are developed versus regional peers.

The ratings on the seven reviewed financial institutions also reflect the following:

Absa Bank Limited (unsolicited)

The unsolicited international and South African national scale ratings of Absa Bank Limited (‘Absa’, ‘the bank’) reflect the strengths and weaknesses of the wider Absa Group (‘the group’). These balance the group’s position as one of the top tier banking groups in an oligopolistic South African banking market, meaningful business and geographic diversification (albeit typically within countries of higher country risk), good risk position, strong earnings which support its intermediate levels of capitalisation, and funding and liquidity risks that are in line with top tier domestic peers.

The group’s operations are dominated by the South African bank, which offers universal banking services and has a relatively stronger domestic retail than corporate franchise. At year-end 2018, the South African bank had a total deposit market share of 20%. The bank’s revenue stability has been fairly good over the past five years, although profitability has compared moderately to some top tier banking peers. The Absa group also has operations across 12 African countries, which make up 10% of its total loans and contributed to the group’s earnings growth with a 13% growth in headline earnings. Typically, within market the banks have good market positions and a history of good revenue stability.

Capitalisation, though adequate, is a slight negative rating factor. We expect the GCR capital ratio to remain in the 12%-13% range over the next two years, balancing moderate asset growth with slightly stronger internal capital generation. Earnings are considered to be good, albeit slightly lower that top tier peers, with return of GCR capital expected to be in the 16.0% -18.0% range over the outlook horizon.

The group’s risk position is considered to be a positive ratings factor, supported by the good diversification of loan book and credit losses that compare well to countries of similar risk. Over the next two years we expect the credit losses to range between 0.5% to 0.75%, balancing the conservative underwriting, moderate economy and lowering interest rate cycle.

The funding and liquidity position is considered to be a neutral for the ratings, reflecting similar mid-term funding concentrations and good liquidity as other top tier banks.

Despite being a top tier bank, there is no government support factored into the ratings of this or any other South African Bank. This is due to the regulatory intention to introduce a resolution regime within the next two years, which will likely lead to the haircutting of senior unsecured (after all junior classes) debt before support is provided.

Outlook Statement

The outlook is Stable, balancing the weak operating environment which could pressurise growth and earnings, with our expectations that credit losses will remain low and capitalisation within the above ranges.

Rated Triggers

The national scale ratings could come down due to a decline in asset quality or profitability, which reduces the bank’s capitalisation. The bank’s international scale ratings could be lowered if the country risk of South Africa deteriorates, most likely due to the weakening position of its sovereign. We see an upgrade as unlikely over the outlook horizon.

FirstRand Bank Limited (unsolicited)

The unsolicited international and South African national scale ratings on FirstRand Bank Limited (‘FirstRand’, ‘the bank’) reflect the strengths and weaknesses of the FirstRand Group (‘the group’), one of the largest financial groups operating in South Africa. The ratings balance the group’s strong domestic market position, positive geographic and business line diversification, alongside the group’s well diversified loan book and low credit losses, intermediate levels of capitalisation supported by strong earnings and funding and liquidity risks that are in line with top tier peers.

The group’s operations are predominantly in South Africa (approximately 75% of total group loans). FirstRand offers universal banking services, with a strong retail and corporate franchise. It is also the most consistent earnings performer in the top tier of the oligopolistic South African banking sector. At year-end 2018, the South African bank had a total deposit market share of 22%. In the United Kingdom (c20% of total group loans), the group owns a challenger bank and vehicle asset finance provider, which adds some good geographic diversification. The rest of Africa (c5% of total group loans), are dominated by their top tier Namibian and Botswanan entities.

Overall, we believe capital to be a slight negative ratings factor. We expect the GCR capital ratio to range around 12% over the next two years, which is at the lower end of our intermediate range, as per our criteria definitions. This forecast balances moderated risk asset growth, due to the weak operating environment and good internal capital generation. Earnings are a mitigant to intermediate capital levels, with the group demonstrating an ability to generate capital quicker than it accumulates assets. We anticipate that the group’s return on assets will range between 1.5% and 1.75% over the next two years, reflecting a strong and stable non-interest income, good margins, strong operating cost control and low risk costs.

The risk position is a positive rating factor, supported by the strongly diversified loan book and lower than sector average credit losses, which compare well to countries with similar country risk scores. We expect the credit losses to range around 0.5% over the next 12-18months.

The funding and liquidity position is considered to be a neutral factor for the ratings, reflecting similar mid-term funding concentrations and good liquidity as other top tier banks.

Despite being a top tier bank, there is no government support factored into the ratings of this or any other South African Bank. This is due to the regulatory intention to introduce a resolution regime within the next two years, which will likely lead to the haircutting of senior unsecured (after all junior classes) debt before support is provided.

Outlook Statement

The outlook is Stable, balancing the weak operating environment which could pressurise growth and asset quality with the currently strong levels of earnings and credit losses.

Triggers

The international scale ratings could be lowered if the country risk of South Africa deteriorates, most likely due to the weakening position of its sovereign. The national scale ratings could come down if the GCR capital ratio goes sustainable below the 11% mark, if asset quality deteriorates or the profitability suffers. We see limited upside to the rating over the outlook horizon.

Grindrod Bank Limited

The International and South African national scale ratings of Grindrod Bank Limited (‘Grindrod bank’; ‘the bank’) reflect the bank’s relatively small size, adequate levels of capitalisation, strong history of low credit losses, high loan book concentrations to real estate and above average funding and liquidity.

Grindrod bank offers a broad range of products and services, although a large amount of its lending is skewed towards property. However, its market share of 0.2% is modest for a highly competitive and oligopolistic sector. Positively, revenue stability has been good over the last five years, although we expect some increasing volatility as the recurring fee and commission earnt from the South Africa Social Security Agency (‘SASSA’) has started to diminish.

Capitalisation and earnings are a neutral ratings factor. We expect the GCR capital ratio to range between 14%-15% over the outlook horizon, balancing moderate loan growth (in part due to the weak operating environment) with adequate returns. We forecast the bank to return approximately 1.4% to 1.5% of total assets over the next 12 months, balancing a restrained net interest margin of just over 1%, cost to income of approximately 55%, flat non-interest revenues and a low cost of risk.

The risk position is also a neutral ratings factor. This opinion balances the bank’s very strong cost of risk, with loan losses averaging less than 0.3% of total loans over the past four years, and good levels of collateral against high lending concentrations in real estate and some additional complexity in the loan book. Loan loss reserves are considered to be adequate, at around 80% of non-performing loans.

Funding and liquidity are a relative strength of the bank versus market peers. Despite some single name concentrations in the deposit book and higher cost of funds, we consider the funding structure to be stable and benefitting from the lack of concentrations with financial corporates. Furthermore, liquidity is considered to be good, with liquid assets covering a significant 46% of total deposits and multiples of the bank’s wholesale funding. The regulatory net stable funding and liquidity coverage ratios both compare well to market peers.

Despite being an important and well supported entity within the wider Grindrod Group, we have not factored in any support to the ratings on the bank. This largely reflects a conservative view on the capacity of the group to provide timely support, given publicly available information on the group.

Outlook Statement

The outlook is Stable, balancing the weakened operating environment with our opinions on stable capital, liquidity and risk.

Rating triggers

We could raise the rating if the cost of risk of the bank continues to outperform the market over the next 12-18months, as long as the earnings capacity and capitalization of the bank remains are current levels. We could also raise the ratings if we have a more favourable view of the creditworthiness of the parent. We consider a lowering of the national scale to be unlikely over the outlook horizon.

Investec Bank Limited

The international and South African national scale ratings on South Africa based Investec Bank Limited (‘Investec’; ‘the bank’) are supported by its strong risk position, a neutral competitive position, adequate funding profile and good liquidity position. The ratings are restrained by our opinion that the bank’s capital levels will remain at the lower end of the intermediate range, as per our criteria definitions, over the outlook horizon.

Over the past five years Investec Bank Limited’s credit losses have continually outperformed the domestic banking sector. In our opinion, these low levels of losses are attributable to two factors, its customer base of relatively high net wealth people and the strong levels of collateralisation. Given the strong deleveraging and cautious investing of this customer base over the past few years, we anticipate the trend of sector outperformance to continue. Overall, we estimate the five-year credit loss average (from 2016 to 2021) will be around 0.3%, in comparison to a sector average of over 1%. We also believe limited foreign currency lending and good levels of diversification, by single obligor and not necessarily industry which still has a skew towards real estate, to be supportive of the over risk position.

The competitive position of the bank is supported by its strong niche, amongst South Africa’s wealthy and increasingly emerging wealth, but we believe it is restrained versus the top four banks in the South African sector, due to its relatively small customer base, compared to mass market retail banks. At year-end 2018, the South African bank had a total deposit market share of 8%.

We expect the GCR capital ratio to range between 12% and 12.5% over the next two years, supported by moderate loan growth and stable earnings. Our forecasted return on assets of around 1% is lower than banking sector peers, in part due to a higher fixed cost (operational and funding) base, however the contribution of non-funded income is relatively higher.

Funding and liquidity is considered to be a neutral factor. Single name obligor depositor concentrations are somewhat higher for Investec than top tier banking peers, however Investec also hold relatively higher levels of liquidity to offset the risk.

There is no external support factored into the ratings. Despite being a top tier bank, there is no government support factored into the ratings of this or any other South African Bank. This is due to the regulatory intention to introduce a resolution regime within the next two years, which will likely lead to the haircutting of senior unsecured (after all junior classes) debt before support is provided.

Outlook Statement

The outlook is Stable, balancing the weak operating environment which could pressurise growth and earnings, with expectations of low credit losses and stable capitalisation.

Rating Triggers

We could lower the national and international scale ratings if there is a deterioration in asset quality or capitalisation beyond our current expectations. The international scale ratings could also be lowered if the country risk of South Africa deteriorates, most likely due to the weakening position of its sovereign. We see an upgrade in the ratings to be unlikely over the outlook horizon, given the strained operating environment.

Nedbank Limited (unsolicited)

The unsolicited international and South African national scale ratings of Nedbank Limited (‘Nedbank’; ‘the bank’) reflects the strengths and weaknesses of the wider Nedbank Group (‘the group’). These include the bank’s position within the top tier of the domestic banking sector, low credit losses, high concentrations in commercial real estate, adequate levels of capitalization supported by strong and stable earnings and funding & liquidity risks that are in line with the market.

The group is one of the top tier financial services operating in the oligopolistic South African banking sector. It offers a universal range of banking services from retail, through to business, corporate and investment banking with a good spread of revenues across the units. The bank also derives particular competitive advantage in the commercial real estate space. At year-end 2018, the South African bank had a total deposit market share of 19%.

Compared to top tier South African peers, the group is somewhat concentrated geographically, with key subsidiaries in Southern Africa (2% of loan book) and a stake in Ecobank Transnational incorporated (3% of loan book) providing a moderate amount of diversification. Positively, they are not overly exposed to countries of higher country risk.

The bank’s risk position is a positive ratings factor. We expect the group’s credit loss ratio of 0.53% (compared to a peer average of 0.65%), to be maintained over the next 12months, reflecting conservative underwriting and low risk concentrations. We do consider the bank’s heighted exposure to commercial real estate (22% of total loans), including some struggling REITs, to a be weakness. However, the credit losses from this section of the loan book have been well contained and the collateral levels are good.

Capitalisation is a slightly negative rating factor, balancing the capital ratio at lower end of the intermediate range, with robust earnings. We expect the GCR capital ratio to range between the 12.5% -13.5% over the next 18 months. This balances moderate risk asset growth, reflecting the weak operating environment and slightly quickly internal capital generation. The group’s return on assets are expected to range between 1.2% and 1.3% over of the next 12 months, balancing a small reduction in margins, continued good non-interest income, inflation led expense growth and low risk costs.

The funding and liquidity position is considered to be a neutral for the ratings, reflecting similar mid-term funding concentrations and good liquidity as other top tier banks. Despite being a top tier bank, there is no government support factored into the ratings of this or any other South African Bank. This is due to the regulatory intention to introduce a resolution regime within the next two years, which will likely lead to the haircutting of senior unsecured (after all junior classes) debt before support is provided.

Outlook Statement

The outlook is Stable, balancing the weak operating environment which could pressurize growth with the low credit losses, stable capital and strong earnings.

Rated Triggers

The international scale ratings could be lowered if the country risk of South Africa deteriorates, most likely due to the weakening position of its sovereign. The national scale ratings could come down due to a decline in asset quality if there is pressure in the Real estate market, due to the bank’s large exposure. A decline in profitability which affects capitalization could also lead to lower ratings.

Sasfin Bank Limited

The international and South African national scale ratings on Sasfin Bank Limited (‘Sasfin’, ‘the bank’) reflect the strengths and weaknesses of the wider Sasfin Group (‘the group’). The group encompasses the banking subsidiary, Sasfin, as well as a wealth management and private equity business.

The ratings are anchored on the operating environment of South Africa, and balance the group’s adequate capital and risk position, relatively weak business position due to smaller size and limited franchise versus top tier banks, and moderate funding and liquidity risks.

Sasfin is a mid-tier bank, with focus on SMEs lending and a small but growing transactional banking franchise. The market share in banking business is less than 1%. However, the core competency of the group lies with its equipment lease business, largely for SMEs, which contributes materially to revenues. Positively, the group has a good track record of revenue stability, which is increasingly benefiting from improving diversification. Furthermore, the wealth management business has a relatively good franchise versus peers.

The capital adequacy of the group is in the intermediate range. As of 30th September 2018, the group had a GCR total capital ratio of 15%. We expect the ratio to range between 15-16% over the next 12-18 months, balancing moderate asset growth and internal capital generation. Earnings are considered to be modest in comparison to top tier peers, with the group returning less than 1% of assets in 2018. We expect earnings to improve but still lacking in comparison to the top tier over the next 12 months, balancing relatively good margins and high operating costs with the high and stable contribution from non-interest income.

The risk position is broadly in line with sector average. Credit losses measured 1.2% at half year-end December 2018, down from 1.8% at year-end June 2018, although through the cycle losses have averaged below 1%. The risk position also benefits from very low loan concentrations, with top 20 exposures accounting just under 5% of total loans, and limited foreign currency lending.

We consider the bank’s funding structure to be broadly negative, with deposits from financial institutions and market funding, which we consider less stable, dominating the funding portfolio. Positively, liquidity is good supported by a positive asset/liability mismatch due the short-term nature of lending and a lengthened term profile of debt.

Outlook Statement

The Stable outlook is supported by a stable business position, good liquidity balancing the structural weakness of the funding structure, and our expectation that capital against risk will remain adequate.

Rating Triggers

A national scale ratings improvement could arise from improved business line diversification, a stronger retail franchise that lowers the cost of funds, and stronger internal capital generation. A national scale downgrade could be caused by weaker asset quality or earnings, or a reduction in capital adequacy. Alongside the above, a movement in the international scale ratings could be caused by an equal movement in the country or sector risks.

Standard Bank of South Africa Limited (unsolicited)

The unsolicited international and South African national scale ratings on the Standard Bank of South Africa Limited (‘SBSA’, ‘the group’) reflect the strengths and weaknesses of the Standard Bank Group, one of the largest financial services group on the African continent. The ratings balance the group’s strong market position in South Africa and established franchise across the African continent. The group’s three major domestic operations include SBSA, a top tier universal bank operating in a domestic oligopoly, with a total deposit market share of 22% at year-end 2018, the majority owned Liberty Holdings Limited, a leading life insurance company and Stanlib a leading domestic asset management. Internationally, the group has a good franchise across higher risk Africa countries (contributing approximately 20% of total loans), including operations in Kenya, Nigeria, Uganda and Namibia.

We consider the capital and earnings position of the group to be a slight negative for the ratings. This reflects our opinion that the GCR capital ratio will range between 12.5% and 13% over the next 12-18 months, balancing moderate asset growth due to the weak operating environment, with robust internal capital generation. We expect the group’s return on assets and GCR capital to be around 1.5% and 25% over the outlook horizon, which is good and broadly in line with top tier peers.

The risk position is a positive ratings factor, supported by the strongly diversified loan book and just lower than sector average credit losses, which compare well to countries with similar country risk scores. We expect credit losses of the group to be around 0.5% over the next 12 months.

The funding and liquidity position is considered to be a neutral for the ratings, reflecting similar medium term funding concentrations and good liquidity as other top tier banks.

Despite being a top tier bank, there is no government support factored into the ratings of this or any other South African Bank. This is due to the regulatory intention to introduce a resolution regime within the next two years, which will likely lead to the haircutting of senior unsecured (after all junior classes) debt before support is provided.

Outlook Statement

The outlook is Stable balancing the weak operating environment with the strong financial profile of the group.

Rating Triggers

An unexpected deterioration in the capital, asset quality or earnings of the group could bring the national scale ratings down. An international scale downgrade could reflect the above, alongside increased country risks. A ratings upgrade is considered unlikely over the ratings horizon.

Analytical Contacts: Absa Bank Limited

Primary analyst(s) Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Analytical Contacts: FirstRand Bank Limited

Primary analyst Nyasha Chikwengo Financial Institutions Analyst
Johannesburg, ZA NyashaC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Analytical Contacts: Grindrod Bank Limited

Primary analyst Nyasha Chikwengo Financial Institutions Analyst
Johannesburg, ZA NyashaC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Analytical Contacts: Investec Bank Limited

Primary analyst Nyasha Chikwengo Financial Institutions Analyst
Johannesburg, ZA NyashaC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Analytical Contacts: Nedbank Limited

Primary analyst Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Analytical Contacts: Sasfin Bank Limited

Primary analyst Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Analytical Contacts: Standard Bank of South Africa Limited

Primary analyst Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Sector Head: Financial Institutions 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 Scale, Symbols & Definitions, May 2019
  • GCR Country Risk Scores, June 2019
  • GCR Financial Institutions Sector Risk Score, July 2019

Ratings History

Absa Bank Limited

Rating class Review Rating scale Rating class Outlook Date
Issuer Long Term Initial National AA-(ZA) Stable February 2000
Last National AA(ZA) Stable May 2018
Initial International BBB+ Stable May 2013
Last International BB+ Stable June 2018
Issuer Short Term Initial National A1+(ZA) n/a February 2000
Last National A1+(ZA) n/a May 2018

FirstRand Bank Limited

Rating class Review Rating scale Rating class Outlook Date
Issuer Long Term Initial National AA(ZA) Stable December 2010
Last National AA+(ZA) Stable December 2018
Initial International BBB Stable November 2013
Last International BB+ Stable December 2018
Issuer Short Term Initial National A1+(ZA) n/a December 2010
Last National A1+(ZA) n/a December 2018

Grindrod Bank Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National BBB+(ZA) Stable April 2016
Last National BBB+(ZA) Stable April 2018
Initial International BB Stable April 2016
Last International B+ Stable June 2018
Issuer Short Term Initial National A2(ZA) n/a April 2016
Last National A2(ZA) n/a April 2018

Investec Bank Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National AA-(ZA) Stable September 2000
Last National AA(ZA) Stable November 2018
Initial International BBB Stable September 2000
Last International BB+ Stable November 2018
Issuer Short Term Initial National A1+(ZA) n/a September 2000
Last National A1+(ZA) n/a November 2018

Nedbank Limited

Rating class Review Rating scale Rating class Outlook Date
Issuer Long Term Initial National AA(ZA) Stable September 2010
Last National AA(ZA) Stable May 2018
Initial International BBB Stable July 2013
Last International BB+ Stable June 2018
Issuer Short Term Initial National A1+(ZA) n/a September 2010
Last National A1+(ZA) n/a May 2018

Sasfin Bank Limited

Rating class Review Rating scale Rating class Outlook Date
Issuer Long Term Initial National BBB+(ZA) Stable May 2016
Last National BBB+(ZA) Stable May 2018
Initial International BB Stable May 2016
Last International B+ Stable June 2018
Issuer Short Term Initial National A1-(ZA) n/a May 2016
Last National A1-(ZA) n/a May 2018

Standard Bank of South Arica Limited

Rating class Review Rating scale Rating class Outlook/Watch Date
Issuer Long Term Initial National AA(ZA) Stable June 2001
Last National AA+(ZA) Stable May 2018
Initial International BBB+ Stable May 2013
Last International BB+ Stable June 2018
Issuer Short Term Initial National A1(ZA) n/a June 2001
Last National A1+(ZA) n/a May 2018

Risk Score Summary

Risk score Absa FirstRand Grindrod Investec Nedbank Sasfin SBSA
Operating environment 15 16.5 15.5 15.5 15.5 15.5 15
Country risk score 7 8.5 7.5 7.5 7.5 7.5 7
Sector risk score 8 8 8 8 8 8 8
Business profile 1 1.5 -4 0 1 -3 2
Competitive position 1 1.5 -4 0 1 -3 2
Management and governance 0 0 0 0 0 0 0
Financial profile 0.5 0.5 0.5 1 0.5 -1 0.5
Capital and Leverage -0.5 -0.5 0 -1 -0.5 0 -0.5
Risk 1 1 0 2 1 0 1
Funding structure and Liquidity 0 0 0.5 0 0 -1 0
Comparative profile 0 0 0 0 0 0 0
Group support 0 0 0 0 0 0 0
Government support 0 0 0 0 0 0 0
Peer analysis 0 0 0 0 0 0 0
Total Score 16.5 18.5 12.0 16.5 17.0 11.5 17.5

Glossary

Benefits Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.
Capital The sum of money that is invested to generate proceeds.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
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.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Market An assessment of the property value, with the value being compared to similar properties in the area.
National Scale Rating National scale ratings measure creditworthiness relative to issuers and issues within one country.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Performing An obligation that performs according to its contractual obligations.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
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.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings 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 been disclosed to the rated entities.

The ratings of the following entities were solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings: Investec Bank Limited, Sasfin Bank Limited, Grindrod Bank Limited. All other ratings (i.e. Absa Bank Limited, FirstRand Bank Limited, Nedbank Limited and the Standard Bank of South Africa Limited) are unsolicited and no compensation has been received.

Investec Bank Limited, Sasfin Bank Limited and Grindrod Bank Limited all participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the entities and other reliable third parties to accord the credit rating included:

  • Audited financial results as at 31 December 2018;
  • Management accounts for 2019;
  • Budgeted financial statements for 2019;
  • Latest internal and/or external audit report to management;
  • A breakdown of facilities available and related counterparties; and
  • Industry comparative data.

Absa Bank Limited, FirstRand Bank Limited, Nedbank Limited and the Standard Bank of South Africa Limited did not participate in the ratings process, however the quality of public disclosure from audited accounts and risk management booklets, alongside regulatory returns, meets out information sufficiency requirements.



ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.