Fitch Ratings has revised five South African banks’ National Long-Term Ratings to ‘AA(zaf)’ from ‘AA-(zaf)’. This rating action follows the recalibration of the South African National Rating scale following the downgrade of the sovereign on 3 April 2020 and restores the rating relativities between the banks and the best credits in the country as they were before the March and April negative rating actions on the banks and the sovereign, respectively. Ratings revisions are used to modify ratings for reasons that are not related to changes in credit quality.
A full list of rating actions is detailed below.
KEY RATING DRIVERS
National scale ratings are a risk ranking of issuers in a particular market designed to help local investors differentiate risk. South Africa’s National Ratings are denoted by the unique identifier ‘(zaf)’. National Ratings are not comparable to Fitch’s International Ratings or to other countries’ National Ratings.
The National Ratings of the South African banks consider their creditworthiness relative to other issuers in the country. The recalibration of the South African National Rating scale has resulted in the upward revision of National Long-Term Ratings of five South African banks – Absa Bank Limited, FirstRand Bank Limited, Investec Bank Limited, Nedbank Limited and The Standard Bank of South Africa Limited – to ‘AA(zaf) (from ‘AA-(zaf)’. The National Short-Term Ratings are affirmed at ‘F1+(zaf)’. The Outlook on all National Long-Term Ratings is Negative, in line with the Negative Outlook on the respective banks’ Local-Currency Long-Term Issuer Default Ratings.
Fitch has taken similar rating actions on the National Long-Term Ratings of four South African bank holding companies, namely Absa Group Limited, Investec Limited, Nedbank Group Limited and Standard Bank Group Limited.
Debt ratings (where applicable) have also been revised upwards. National Ratings assigned to Tier 2 issues are two notches below the National Rating anchor ratings. The National Rating assigned to Absa Group Limited’s senior debt is one notch below the National Rating anchor rating to reflect below-average recovery prospects because of thin qualifying junior debt buffers.
The National Ratings are sensitive to a change in the banks’ creditworthiness relative to other South African issuers.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downside risk will come from a weakening in the banks’ standalone credit profiles, especially any material deterioration in asset quality, profitability and capital in the challenging operating environment. Downside risks are heightened by the coronavirus outbreak, especially if there is a more severe economic and financial market fallout.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upside to the ratings is unlikely at present, as reflected in the Negative Outlooks.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance.
For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on www.fitchratings.com
The following issuer(s) did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure: FirstRand Bank Limited, Nedbank Limited, Nedbank Group Limited