Fitch Affirms Absa and Absa Bank
Fitch Ratings-London/Johannesburg-05 November 2009: Fitch Ratings has today affirmed the ratings of Absa Group Limited (Absa) and its wholly-owned subsidiary, Absa Bank Limited, (Absa Bank) at 'A' and changed the Outlooks on their Long-term local currency Issuer Default ratings (IDR) to Stable from Negative. Please see a full list of ratings actions below.
The Long-term IDRs of Absa and Absa Bank reflect the majority ownership by Barclays Bank Plc (Barclays), and an extremely high probability of support that arises as a result of the UK bank's 55.5% ownership. The revision of the Outlook on Absa's and Absa Bank's Long-term local currency IDRs to Stable from Negative, follows the recent affirmation of Barclays' Individual rating of 'B' and its removal from Rating Watch Negative on 29 October 2009. The Long-term local currency IDRs of Absa and Absa Bank are not constrained by South Africa's Country Ceiling.
The Negative Outlooks on Absa's and Absa Bank's Long-term foreign currency IDRs reflect the downward pressure on South Africa's Country Ceiling, following the change in the Outlook of the South African sovereign rating on 9 November 2008.
The Individual rating reflects Absa's well established domestic franchise, stable deposit base, surplus liquidity buffers and acceptable levels of Tier 1 capital. These factors are balanced by weaker financial performance, following significantly higher retail impairment charges as a result of deteriorating asset quality, and a contraction in loan growth during H109. Absa's pre-tax earnings for H109 were 37.5% lower than H108 due to the difficult operating environment, an impairment of the value of certain associate investments and the absence of one-off gains. Management indicated that if these items had been excluded Absa's pre-tax earnings to H109 would have been 14.9% lower than end-H108. Absa's impairment charge on loans and advances in H109 was 121.9% higher than H108. Given Absa's performance to H109 and the difficult operating environment Fitch expects Absa's core earnings to FY09 will be significantly lower than FY08 although the bank's strong domestic franchise should support its revenue-generating ability through this tough economic cycle.
Tighter lending criteria and a contraction in domestic activity caused gross loans to decline 1.5% during H109. The rapid deterioration in Absa's asset quality during FYE08 and H109 was a function of significantly higher retail defaults and a realignment of Absa's non-performing loan definition with other major SA banks. This caused Absa to report an NPL ratio of 6.6% at H109, up from 2% at H108. Fitch considered Absa's impairment coverage ratio of 33.7% at H109 to be low. At H109 Absa reported a Tier 1 capital ratio of 11.5% (FYE08: 11.6%).
Absa is a South African financial services holding company whose activities span banking, insurance and other financial sectors. Absa Bank, its major operating subsidiary, is one of the country's four largest banks by assets, with a leading position in retail banking. Barclays is one of the largest banking groups in the UK with assets of GBP1,545bn at end-H109.
Absa:
Long-term foreign currency IDR: affirmed at 'A', Outlook Negative
Short-term foreign currency IDR: affirmed at 'F1'
Long-term local currency IDR: affirmed at 'A', Outlook revised to Stable from Negative
National Long-term rating: affirmed at 'AAA(zaf)', Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)'
Individual rating: affirmed at 'C'
Support rating: affirmed at '1'
Absa Bank:
Long-term foreign currency IDR: affirmed at 'A', Outlook Negative
Short-term foreign currency IDR: affirmed at 'F1'
Long-term local currency IDR: affirmed at 'A', Outlook revised to Stable from Negative
National Long-term rating: affirmed at 'AAA(zaf)', Outlook Stable
National Short-term rating: affirmed at 'F1+(zaf)',
Individual rating: affirmed at 'C'
Support rating: affirmed at '1'
In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.
Further details on Absa and Absa Bank are contained in an upcoming credit analysis, available on www.fitchratings.com.
Contact: Anthony Walker, Denzil de Bie 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.
Additional information is available on www.fitchratings.com.
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