Fitch Affirms Standard Bank's Ratings
Fitch Ratings-London/Johannesburg-23 July 2009: Fitch Ratings has today affirmed The Standard Bank of South Africa Limited's (SBSA) and Standard Bank Group Limited's (SBG) ratings. A full rating breakdown is provided at the end of this comment.
SBSA and SBG's ratings reflect their strong domestic franchise and a track record of consistent profitability and acceptable Tier 1 capitalisation. These factors are balanced by deteriorating asset quality in an increasingly challenging operating environment.
Improvements in SBG's net interest and non-interest revenues were offset by significantly higher retail impairment charges and reduced earnings from Liberty Group Limited (Liberty), resulting in a 3.3% reduction in SBG's operating earnings during FY08. SBG's financial performance indicators deteriorated to an operating ROAA of 1.6% and an operating ROAE of 25.1% at FYE08 (FYE07: 2.0% and 38.8%, respectively) as a result of asset growth and an injection of fresh equity, combined with weaker earnings.
Fitch considers that asset quality will continue to deteriorate, leading to higher impairment charges which may result in SBG's and SBSA's FY09 earnings being lower than that achieved in FY08. However, SBSA has a strong domestic franchise, which should support the entities' ability to generate revenues throughout the economic cycle.
SBG's gross loan book grew by 22.3% (FY07: 31.5%) to ZAR672.1bn at FYE08 (FYE07: ZAR549.4bn) on the back of acquisitions and organic growth. Discounting the impact of written off loans, SBG's NPLs rose by 418.7% to ZAR27.6bn, resulting in a weakening of the group's NPL ratio to 4.1% at FYE08 (FYE07: 1.8%). Most of this deterioration occurred in retail banking, with 80.2% of NPLs in this category at FYE08. Home loans continued to be hardest hit, accounting for 59% of total NPLs at FYE08. Coverage for NPLs reduced to 50.7% at FYE08 (FYE07: 74.9%) as a result of the mix of NPLs becoming more concentrated in secured lending.
SBSA has a stable funding base which supported customer deposit growth of 23.7% to ZAR714.8bn at FYE08. Fitch considers liquidity to be acceptable.
Fitch views SBG's and SBSA's capitalisation as adequate. A fresh injection of capital from Industrial and Commercial Bank of China (ICBC) during the year resulted in an improved Basel II Tier 1 capital adequacy ratio for SBG of 10.7% (SBSA:9.3%) at FYE08 (FYE07: pro forma Basel II of 8.7%, SBSA: 8.5%). This improved further during the year, with SBG reporting a Tier 1 ratio of 10.8% at 31 March 2009.
The rating actions are as follows:
SBSA
Long-term foreign currency Issuer Default Rating (IDR): affirmed at 'BBB+'; Outlook Stable
Long-term local currency IDR: affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
Individual Rating: affirmed at 'C'
Support Rating: affirmed at '2'.
Support Rating Floor: affirmed at 'BBB-'
National Long-term rating: affirmed at 'AA(zaf)'; Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
SBG
National Short-term rating: affirmed at 'F1+(zaf)'
Individual Rating: affirmed at 'C'
Support Rating: affirmed at '5'
A detailed credit report will be available shortly at www.fitchratings.com.
SBG is South Africa's largest banking group. It has an effective shareholding of 53.7% in Liberty, South Africa's third-largest life assurer. SBSA offers a full range of retail, commercial, corporate and merchant banking services in the domestic market. SBG conducts its international operations through Standard International Holdings S.A., Standard Bank Group International Limited and Standard Bank Offshore Group Limited.
Contacts: Denzil de Bie, Anthony Walker, Johannesburg, Tel: +27 11 380 0900.
Media Relations: Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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