Fitch Downgrades 4 South African Banks; Outlook Stable
The rating actions follow the downgrade of South Africa's sovereign rating to 'BBB-'/ Stable (see Fitch Downgrades South Africa to 'BBB-'; Outlook Stable dated 4 December 2015 at www.fitchratings.com).
Fitch has also downgraded Absa Bank Limited's (Absa Bank) and Barclays Africa Group Limited's (BAGL) Long-term foreign and local currency IDRs to 'BBB' and 'BBB+', respectively from 'A-', as a result of South Africa's Country Ceiling being revised to 'BBB'.
The Viability Ratings (VRs) of FirstRand, Absa Bank, BAGL, Nedbank, Nedbank Group Limited (NedGroup), Standard Bank Group Limited (SBG) and SBSA have been downgraded to 'bbb-' from 'bbb', reflecting their concentration to South Africa, large holdings of government securities, high exposure to sovereign-owned enterprises and the weakening economic and operating environment, as indicated by the sovereign downgrade. Their National Ratings have been affirmed.
Investec Bank Limited (Investec Bank) and Investec Limited's (Investec) IDRs and VRs have been affirmed at 'BBB-' and 'bbb-', respectively. Their National Ratings have been upgraded as Fitch believes that their creditworthiness relative to other credits in the country has improved in the downturn owing to a more resilient risk profile.
All Outlooks are Stable, reflecting the Stable Outlook on the sovereign.
A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - VRs and IDRs
The VRs are the driver of the South African banks' (and their respective groups') IDRs, except for Absa and BAGL, which are driven by support from ultimate parent Barclays Plc (Barclays, A/Stable) .
The sovereign rating is effectively acting as a cap on the South African banks' VRs at this rating level because of their strong links with South Africa.
Absa Bank and BAGL's foreign currency IDRs are driven by institutional support from Barclays and capped at South Africa's Country Ceiling. This reflects transfer and convertibility risks associated with servicing foreign currency obligations.
As Fitch believes that external support from Barclays is sufficiently strong and it is unlikely that South Africa will impose restrictions on local currency debt servicing, BAGL's and Absa Bank's local currency Long-term IDRs can be rated above the sovereign local currency rating of 'BBB'. However, given the significant correlation between the risk of foreign currency and local currency restrictions, Fitch limits the uplift of BAGL's and Absa Bank's local currency ratings over their foreign currency ratings to one notch.
KEY RATING DRIVERS - NATIONAL RATINGS
National Ratings reflect the creditworthiness of an issuer relative to the best credit in the country. The National Ratings of FirstRand, Absa Bank, BAGL, Nedbank, NedGroup, SBG and SBSA have been affirmed and are driven by their respective Long-term local currency IDRs. Investec Bank and Investec's National Ratings have been upgraded to 'AA-'(zaf) from A+(zaf) reflecting a more resilient risk profile in the downturn.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Ratings (SRs) of Absa Bank and BAGL have been downgraded to '2' due to the Country Ceiling (the risk of transfer and convertibility restrictions) being revised to 'BBB', reflecting limitations in the ability of Barclays to support its South African subsidiaries. The downgrade of the SR does not signify a reduced willingness to support from Barclays.
The SRs of FirstRand, Investec Bank and SBSA have been affirmed at '3' which signify a moderate probability of support from the South African authorities despite the impending implementation of resolution legislation. The Support Rating Floors (SRF) of FirstRand, Investec Bank and SBSA have also been affirmed at 'BB-'.
The SRFs for Investec and SBG have been affirmed at 'No Floor', indicating that sovereign support will not flow through to holding companies.
Absa Bank, BAGL, Nedbank and NedGroup 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.
KEY RATING DRIVERS - SENIOR DEBT, SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of all foreign currency denominated senior and subordinated debt issued by the banks (apart from Investec Bank) have been downgraded by one notch to reflect the downgrades of the IDRs and VRs, respectively.
As the banks' National Ratings have been affirmed, the National Ratings of all ZAR-denominated debt ratings have also been affirmed (except for Investec Bank). Following the upgrade of Investec Bank's National Ratings, its Basel 3-compliant subordinated debt has been upgraded to 'A+(zaf)' from 'A(zaf)'.
SUBSIDIARY AND AFFILIATED COMPANY
The IDRs and National Ratings of Standard Bank Group's (SBG) Kenyan subsidiary, CfC Stanbic Bank Limited and the National Ratings of its Nigerian subsidiary, Stanbic IBTC Bank PLC and its holding company Stanbic IBTC Holdings PLC have been affirmed. This reflects a moderate probability of support from SBG for both subsidiaries.
RATING SENSITIVITIES
IDRs, VRs, NATIONAL RATINGS AND SENIOR DEBT
The VRs could be upgraded if the operating environment improves, as reflected by an upgrade of the sovereign rating. All VRs as well as all IDRs, National Ratings and senior debt ratings except those on BAGL, Absa Bank, Nedbank and NedGroup are sensitive to weaker financial metrics, particularly signs of higher risk appetite, a deterioration of asset quality and/or capital.
The VRs of all five banks as well as the IDRs and senior debt ratings of FirstRand, SBSA and Investec and their respective holding companies would be downgraded by one notch if South Africa is downgraded by a further notch. The IDRs of BAGL and Absa Bank are sensitive to a change in probability of support from Barclays, including further revision of the Country Ceiling. Their National Ratings are sensitive to changes in Barclays' ratings or willingness to provide support. The IDRs and senior debt ratings of Nedbank and Nedbank Group would be downgraded if South Africa is downgraded by a further notch and probability of support from the parent, Old Mutual Plc, weakens. Their National Ratings would be downgraded if financial metrics and probability of support from the parent weaken.
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 signalled by public statements or a reduction in shareholding or an indication of an intention to sell.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt ratings are primarily sensitive to a change in the VRs (the anchor rating for international subordinated debt issuance) and in National Ratings (the anchor rating for domestic subordinated debt issuance), respectively. Fitch has withdrawn an expected rating on BAGL's subordinated debt issue, which is no longer expected to convert to final ratings. This does not affect BAGL's existing domestic subordinated notes, which Fitch rates at 'AA+(zaf).
SUBSIDIARY AND AFFILIATED COMPANIES
The IDRs and National Ratings of CfC Stanbic Bank Limited and the National Ratings of Stanbic IBTC Bank PLC and its holding company are sensitive to a lower perceived willingness of SBG to provide support. The IDRs could also be sensitive to a revision of Kenya/Nigeria's Country Ceiling, which could result from a corresponding change in the sovereign ratings.
The rating actions are as follows:
Barclays Africa Group Limited:
Long-term foreign currency IDR: downgraded to 'BBB' from 'A-'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB+ from 'A-'; Outlook Stable
Short-term foreign currency IDR: downgraded to 'F3' from 'F2'
National Long-term rating: affirmed at 'AAA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Viability Rating: downgraded to 'bbb-' from 'bbb'
Support Rating: downgraded to '2' from '1'
Senior unsecured debt: affirmed at 'AAA(zaf)'/'F1+(zaf)'
Subordinated notes: affirmed at 'AA+(zaf)'
Absa Bank Limited:
Long-term foreign currency IDR: downgraded to 'BBB' from 'A-'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB+' from 'A-'; Outlook Stable
Short-term foreign currency IDR: downgraded to 'F3'from 'F2'
National Long-term rating: affirmed at 'AAA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Viability Rating: downgraded to 'bbb-' from 'bbb'
Support Rating: downgraded to '2' from '1'
Senior unsecured debt: downgraded to 'BBB'/'F3' from 'A-'/F2' and affirmed at 'AAA(zaf)'/
FirstRand Bank Limited:
Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: downgraded to 'bbb-' from 'bbb'
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB-'
National Long-term rating affirmed at 'AA(zaf)'; Outlook Stable
National Short-term rating affirmed at 'F1+(zaf)'
Senior unsecured notes: downgraded to 'BBB-' from BBB and affirmed at 'F3'/ 'AA(zaf)'/ 'F1+(zaf)'
Subordinated notes: downgraded to 'BB+' from 'BBB-' and affirmed at '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: upgraded to 'AA-(zaf)' from 'A+(zaf)'; Outlook Stable
National Short-term rating: upgraded to 'F1+(zaf)' from '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: affirmed at 'BB-'
National Long-term rating: upgraded to 'AA-(zaf)' from 'A+(zaf)'; Outlook Stable
National Short-term rating: upgraded to 'F1+(zaf)' from 'F1(zaf)'
Senior unsecured debt: affirmed at 'BBB-'/ 'F3'
Basel 3-compliant Tier 2 subordinated debt: upgraded to 'A+' from 'A(zaf)'
Nedbank Group Limited:
Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: downgraded to 'bbb-' from '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: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: downgraded to 'bbb-' from '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: downgraded to 'BBB-' from 'BBB' and affirmed at 'F3'
Subordinated notes: downgraded to 'BB+' from 'BBB-'
Standard Bank Group Limited:
Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
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: downgraded to 'bbb-' from 'bbb'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Standard Bank of South Africa Limited:
Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
Long-term local currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
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: downgraded to 'bbb-' from 'bbb'
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB-'
Senior unsecured debt: affirmed at 'BBB'/'F3'
CfC Stanbic Bank Limited:
Long-term IDR: affirmed at 'BB-'; Outlook Stable
Short-term IDR: affirmed at 'B'
National Long-term Rating: affirmed at 'AAA(ken)'; Outlook Stable
National Short-term Rating: affirmed at 'F1+(ken)'
Support Rating: affirmed at '3'
Viability Rating: 'b' - unaffected
Stanbic IBTC Bank PLC:
National Long-term Rating: affirmed at 'AAA(nga)'
National Short-term Rating: affirmed at 'F1+(nga)'
Stanbic IBTC Holdings PLC:
National Long-term Rating: affirmed at 'AAA(nga)'
National Short-term Rating: affirmed at 'F1+(nga)'
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