GCR has affirmed Investec Bank Limited’s (“IBP”) national scale ZAR currency, long term rating at AA- (double A minus) and its short term rating at A1+ (single A one plus). The ratings reflect the group’s established domestic franchise value (taking into account that its niche focus translates into a relatively captive market base) and risk appropriate capital cushioning. This is, however, partially offset by the issues surrounding a stable global economic recovery, especially considering the impact of a regression on Africa.
Despite its impact being nothing more than theoretical at present, the plethora of regulatory changes now being finalised must be kept in mind. The basic items here include: capitalisation – the proposed changes touch on what can be classified as capital, as well as how much is needed (to be boosted by the addition of a capital conservation, procyclicality and countercyclical buffer); liquidity – details a strong preference for longer-dated funding to increase banks’ short-term resilience (to be monitored by the net stable funding and liquidity coverage ratios); other risk measures – improved monitoring and limitations on leverage, counterparty exposures and provisioning models; oversight – several matters have been tabled by the treasury, although which proposals will be retained remains unclear. Naturally, the banking sector’s readiness for these changes should be tracked in any risk assessments.
Although experiencing some repayment pressure, asset quality remained, for the most part, sound – with the noted deterioration in the private bank division offset by improved collections and remedied customer loan accounts in the capital markets division. Moreover, the need to increase provisions was moderated by a recovery in collateral asset values, as well as an increase in the base value of security held against past due and impaired loans.
Reflecting the challenges of a still recovering environment, as well as the bank’s own conservative strategy, real revenue growth was restricted to only a few income statement lines, albeit that the shrinkage in profits have started to show some signs of slowing. Looking forward, earnings fundamentals will remain mixed until the local economy recovers completely.
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