OREANDA-NEWS. Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) of FirstRand Bank Limited (FirstRand), Absa Bank Limited (Absa), Investec Bank Limited (Investec Bank), Nedbank Limited (Nedbank) and The Standard Bank of South Africa Limited (SBSA) and the rated groups of the last four as part of its peer review of South African banks. The rating Outlook is Negative for FirstRand, Absa, SBSA and Nedbank (and their rated groups), reflecting the Negative Outlook on the South African sovereign (BBB/Negative).

Simultaneously Fitch has revised the Support Rating Floors (SRF) of SBSA, FirstRand and Investec Bank to 'BB-' from 'BB+' due to South Africa making sufficient progress in implementing resolution legislation. In Fitch's view the revised SRF still reflects a moderate probability of extraordinary sovereign support for these three banks if required. The rating action on the SRFs reflects revisions to support assessments in South Africa in conjunction with Fitch's review of sovereign support for banks globally announced in March 2014.

KEY RATING DRIVERS - VIABILITY RATINGS (VR)

The VRs are the driver of the South African banks' IDRs (and their respective groups'), except for Absa and Barclays Africa Group Limited (BAGL). The VRs of the major South African banks are underpinned by strong company profiles, quality management and coherent strategies, sophisticated risk management and overall good financial metrics. This is offset by the slow decline in South Africa's operating and economic environment, which has a high influence on the banks' VRs.

Other negative rating factors include the risk appetite of the largest groups as they expand regionally and retain their exposure to the weakening South African operating environment; the banks' high exposure to domestic sovereign bonds (relative to capital) and its potential impact on asset quality; expected rise in NPLs amid a deteriorating environment; and slower earnings and profitability for the sector especially as loan impairment charges start to rise.

The VRs of Absa, BAGL, FirstRand, Nedbank, Nedbank Group Limited (Nedbank Group), SBSA and Standard Bank Group Limited (SBG) are therefore capped at the 'bbb' level because of their strong links with South Africa. Due to the niche franchise and focus of Investec Bank and its group, Investec Limited (Investec), their VRs are one notch lower at 'bbb-' (and below the sovereign cap).

KEY RATING DRIVERS - IDRs, NATIONAL RATINGS AND SENIOR DEBT

The IDRs and senior debt ratings of the major South African banks (and their respective groups), excluding BAGL and Absa, are driven by their VRs. BAGL's and Absa's IDRs and senior debt ratings are driven by institutional support from 62.3%-parent, Barclays Bank Plc (Barclays, A/Stable). BAGL's and Absa's IDRs are notched once from Barclays' rating, reflecting Fitch's view that both are strategically important to Barclays rather than core subsidiaries of the UK bank.

The National Ratings of the major banks (and their rated groups) have been affirmed and are driven by their Long-term local currency IDRs. National Ratings reflect the creditworthiness of an issuer relative to the best credit in the country.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch has revised the SRFs of FirstRand, Investec Bank and SBSA to 'BB-' from 'BB+' due to South Africa making sufficient progress in resolution legislation, aimed at addressing the inadequacy of standard insolvency laws for resolving troubled banks in an orderly manner. New resolution legislation will give the authorities tools and a framework to resolve troubled banks and this signifies a reduced propensity to support in Fitch's opinion. Nevertheless, we believe that South Africa will continue take a flexible approach to resolution legislation in the interest of financial stability. Therefore, if required, Fitch believes there will still be a moderate probability of extraordinary sovereign support for the country's largest banks and their senior creditors. Fitch has therefore affirmed the Support Ratings (SR) of FirstRand, Investec Bank and SBSA at '3' which signify a moderate probability of support from the South African authorities.

Absa and Nedbank are not assigned SRFs, as support, if required, is likely to come from their respective parents, Barclays and Old Mutual Plc (BBB/Stable), and not from the South African authorities, in Fitch's view.

Nedbank's and Nedbank Group's SRs of '2' are affirmed, based on potential support from 52%-parent Old Mutual. Fitch considers that support would flow to either entity in the event of need. Similarly, BAGL's and Absa's SRs of '1' are derived from the extremely high probability of support to either entity from Barclays if required.

Investec and SBG both have SRs of '5' and SRFs of 'No Floor', which reflect Fitch's view that sovereign support would flow directly to the operating entities if required, although support cannot be relied upon.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of all foreign currency denominated subordinated debt issued by FirstRand and Nedbank are notched down once from their respective VRs, reflecting Fitch's assessment of the instrument's loss severity relative to the VRs. No additional notches for incremental non-performance risk are applied.

For local currency-denominated subordinated debt issued by BAGL, FirstRand and Investec Bank, the anchor rating used are the banks' National Long-term Ratings. Fitch would typically notch down once from the National Long-term rating, reflecting the agency's assessment of the instruments' loss severity. No additional notching is applied for non-performance risk.

RATING SENSITIVITIES

IDRs, VRs, NATIONAL RATINGS AND SENIOR DEBT

There is currently no upside to the VRs given the weak domestic operating environment. The VRs of all the five banks as well as the IDRs, National Ratings and senior debt ratings of all the banks but Absa are sensitive to weaker financial metrics, particularly signs of higher risk appetite, a deterioration of asset quality and/or capital.

The IDRs, VRs, National Ratings and senior debt ratings of FirstRand, Nedbank, Nedbank Group, SBSA and SBG as well as the VRs on Absa and BAGL would be downgraded by one notch if South Africa is downgraded by a notch.

As Investec's and Investec Bank's IDRs, National Ratings and senior debt ratings are driven by their VRs, which in turn are below the effective sovereign cap, the ratings are unlikely to be affected by a one-notch downgrade of the sovereign.

The IDRs and senior debt ratings of BAGL and Absa are sensitive to a change in Barclays' rating or willingness to provide support.

BAGL's and Absa's institutional support-driven (from Barclays) foreign currency IDRs and senior debt ratings would also be downgraded by one notch in tandem with a one-notch downgrade of South Africa. This is because the uplift of support-driven financial institutions' ratings above the sovereign is usually limited to two notches, reflecting the high correlation between the bank's standalone credit profile and that of the sovereign. As a result BAGL's and Absa's foreign currency IDRs and senior debt ratings would also be downgraded by one notch if South Africa's Country Ceiling is revised lower to 'BBB+'. However, BAGL's and Absa's Long-term local currency IDRs would be unaffected, given that they would still be within two notches of the sovereign local currency IDR if the sovereign is downgraded by one notch or if the Country Ceiling is revised to 'BBB+'.

The National Ratings of all banks (and their respective holding companies), apart from Absa and BAGL, are sensitive to their relative creditworthiness compared with the best credit in the country and with peers. Negative rating action on these could occur if there is a material weakening of asset quality and/or capital adequacy relative to peers. BAGL's and Absa's National Ratings are sensitive to changes in Barclays' ratings or willingness to provide support.

KEY RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

The SRs and SRFs of FirstRand, Investec Bank and SBSA are sensitive to change in the ability or propensity of the South African authorities to support these banks. A weaker propensity to support could be indicated by a stricter application of resolution legislation by the authorities than Fitch's current expectations.

The SRs of Absa, BAGL, Nedbank and Nedbank Group would be sensitive to a change in Fitch's perception of the level of support from the respective parents. This could be signaled by public statements or a reduction in shareholding or an indication of an intention to sell. The SRs of Absa and BAGL would be downgraded to '2' if the sovereign is downgraded, or if the Country Ceiling falls below 'A-'. They could also be downgraded to '2' if Barclays' IDR is downgraded or if there is a reduced willingness to support from the parent.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Foreign and local currency subordinated debt ratings are primarily sensitive to a change in the VRs and in National Ratings, respectively.

The rating actions are as follows:
Barclays Africa Group Limited:
Long-term foreign currency IDR: affirmed at 'A-'; Outlook Negative
Long-term local currency IDR: affirmed at 'A-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '1'
Senior unsecured debt: affirmed at 'AAA(zaf)'/'F1+(zaf)'
Subordinated notes: affirmed at 'AA+(zaf)'

Absa Bank Limited:
Long-term foreign currency IDR: affirmed at 'A-'; Outlook Negative
Long-term local currency IDR: affirmed at 'A-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '1'
Senior unsecured debt: affirmed at 'A-'/'F2' /'AAA(zaf)'

FirstRand Bank Limited:
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Negative
Long-term local currency IDR: affirmed at 'BBB'; Outlook Negative
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '3'
Support Rating Floor: revised to 'BB-' from 'BB+'
National Long-term rating affirmed at 'AA(zaf)'; Outlook Stable
National Short-term rating affirmed at 'F1+(zaf)'
Senior unsecured notes: affirmed at 'BBB'/'F3'/ 'AA(zaf)'/ 'F1+(zaf)'
Subordinated notes: affirmed at 'BBB-'/'AA-(zaf)'
Upper tier 2 notes: affirmed at 'A(zaf)'

Investec Limited:
Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable
Long-term local currency IDR: affirmed at 'BBB-'; Outlook Stable
National Long-term rating: published at 'A+(zaf)'; Outlook Stable
National Short-term rating: published at 'F1(zaf)'
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb-'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'

Investec Bank Limited:
Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable
Long-term local currency IDR: affirmed at at 'BBB-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb-'
Support Rating: affirmed at '3'
Support Rating Floor: revised to 'BB-' from 'BB+'
National Long-term rating: affirmed at 'A+(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1(zaf)'
Senior unsecured debt: affirmed at 'BBB-'/ 'F3'
Basel 3-compliant Tier 2 subordinated debt: affirmed at 'A(zaf)'

Nedbank Group Limited:
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Negative
Long-term local currency IDR: affirmed at 'BBB'; Outlook Negative
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '2'
National Long-term Rating: affirmed at 'AA(zaf)'; Outlook Stable
National Short-term Rating: affirmed at 'F1+(zaf)'

Nedbank Limited:
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Negative
Long-term local currency IDR: affirmed at 'BBB'; Outlook Negative
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '2'
National Long-term Rating: affirmed at 'AA(zaf)'; Outlook Stable
National Short-term Rating: affirmed at 'F1+(zaf)'
Senior unsecured notes: affirmed at 'BBB'/ 'F3'
Subordinated notes: affirmed at 'BBB-'

Standard Bank Group Limited:
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Negative
Long-term local currency IDR: affirmed at 'BBB'; Outlook Negative
Short-term foreign currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'

Standard Bank of South Africa Limited:
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Negative
Long-term local currency IDR: affirmed at 'BBB'; Outlook Negative
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '3'
Support Rating Floor: revised to 'BB-' from 'BB+'
National Long-term rating: affirmed at 'AA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Senior unsecured debt: affirmed at 'BBB'/'F3'.