Fitch Affirms FirstRand Bank and FirstRand Bank Holdings; Outlooks Negative
Fitch Ratings-Johannesburg/London-17 December 2009: Fitch Ratings has today affirmed the ratings of FirstRand Bank Limited (FRB) and its parent, FirstRand Bank Holdings Limited (FRBH). The Outlooks on both entities' Long-term Issuer Default Ratings (IDRs) and National Ratings are Negative. A full rating breakdown is provided at the end of this comment.
FRB's and FRBH's ratings reflect a strong domestic franchise, stable funding and acceptable levels of capital. These are counterbalanced by the significant deterioration in financial performance and asset quality indicators in an increasingly challenging operating environment. In this context, the Outlooks on FRB and FRBH's Long-term IDRs and National Long-term ratings remain Negative. However, management has advised that they expect the banking group's financial performance and asset quality indicators to improve to FYE10. Fitch considers that evidence of a stabilisation of NPLs, and an improvement in operating profit could lead to a revision of the Outlooks to Stable. However, if the tough economic environment leads to further deterioration in asset quality and financial performance, this could lead to a downgrade of the ratings.
FRBH's net earnings declined 44.7% to ZAR4.9bn during FY09, primarily as a result of significantly higher impairment charges, losses arising from the group's international trading operations and one-off gains from the VISA IPO in FY08 that were not repeated during FY09. During FY09, loan loss impairment represented a significant proportion of pre-impairment operating profits. FRBH's net earnings improvements during FY10 are expected to be supported by lower levels of consumer defaults on the back of lower interest rates, together with the absence of further trading losses. Despite these improvements, Fitch considers that the difficult operating environment could lead to higher commercial/corporate defaults during FY10.
FRBH's loan book contracted slightly during FY09, reflecting South Africa's slowing economic environment. Its asset quality deteriorated significantly during FY09, particularly in FRBH's home loans and Wesbank loan portfolios. This resulted in FRBH's NPL ratio weakening to 5.8% at FYE09 (FYE08: 3.1%), with low coverage ratios. Fitch notes that FRBH's coverage has continued to weaken as an increasing proportion of NPLs relate to secured lending.
Fitch considers FRBH's eligible capital/regulatory weighted risks of 13.6% at FYE09 (FYE08: 12.1%) to be acceptable. FRBH's Tier 1 capital adequacy improved to 12.3% FYE09 (FYE08: 11.1%) as a result of lower risk weighted assets arising from reduced levels of market, equity and operational risk and changes to the calculation methodology for credit risk.
The rating actions are as follows:
FirstRand Bank Holdings Limited:
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Negative
Short-term foreign currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AA-(zaf)'; Outlook Negative
National Short-term rating: affirmed at 'F1+(zaf)'
Individual rating: affirmed at 'C'
Support rating: affirmed at '5'
Support Rating Floor: affirmed at 'NF'
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 'F2'
National Long-term rating: affirmed at 'AA(zaf)'; Outlook Negative
National Short-term rating: affirmed at 'F1+(zaf)'
Individual rating: affirmed at 'C'
Support rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB-'
FRBH is wholly-owned by FirstRand Limited (FRL), a leading South African financial services company. FRL's banking activities are conducted through FRBH and FRB and include the provision of domestic and international retail, corporate and investment banking services.
Contacts: Denzil de Bie, Anthony Walker, Frederick Fouche, 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 Africa. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.
101 Finsbury Pavement, London, EC2A 1RS