TEXT-S&P cuts FirstRand Bank, FirstRand ratings
Overview -- On Oct. 12, 2012, we lowered the long-term foreign currency sovereign rating on the Republic of South Africa to 'BBB' from 'BBB+' and the long-term local currency rating to 'A-' from 'A'. We also lowered the short-term local currency rating to 'A-2' from 'A-1' and affirmed the short-term foreign currency rating at 'A-2'. The outlook remains negative. -- We are therefore lowering the long-term rating on FirstRand Bank Ltd (FRB) to 'BBB' from 'BBB+' and the long- and short-term ratings on FirstRand Ltd. (FRL) to 'BBB-/A-3' from 'BBB/A-2'. -- At the same time, we affirmed the South Africa national scale ratings on both entities, following the revision of the mapping guidance for the South Africa national rating scale following the sovereign downgrade. -- The negative outlook on both entities reflects the negative outlook on South Africa. Rating Action On Oct. 16, 2012, Standard & Poor's Ratings Services lowered the long-term rating on FirstRand Bank Ltd. (FRB) to 'BBB' from 'BBB+' and affirmed the 'A-2' short-term rating. We also lowered the long- and short-term ratings on FirstRand Ltd. (FRL), the nonoperational holding company, to 'BBB-/A-3' from 'BBB/A-2'. The outlook on the two entities is negative. At the same time, we affirmed the South Africa national scale ratings on FRB at 'zaAA/zaA-1' and on FRL at 'zaAA-/zaA-1' following the revision of the mapping guidance for the South Africa national rating scale following the sovereign downgrade. Rationale The rating actions on FRB and FRL follow the lowering of the long-term foreign currency ratings on South Africa (see "South Africa FC Long-Term Rating Lowered To 'BBB'; LC Ratings Lowered To 'A-/A-2'; Outlook Remains Negative," published on RatingsDirect on Oct. 12, 2012). While the stand-alone credit profile (SACP) of FRB remains at 'bbb+', which is above the foreign currency sovereign credit rating, the ratings on the bank are capped by the sovereign rating. We do not rate South African banks above the sovereign foreign currency ratings because of the direct and indirect effects the sovereign in distress would have on a bank's operations. Due to its status as a nonoperational holding company, we rate FRL one notch below the issuer credit ratings on FRB. This reflects FRL's reliance on dividends from operating companies to meet its obligations, which exposes the entity to potential regulatory impositions and structural subordination. The lowering of the sovereign ratings reflects our opinion that strikes in South Africa's mining sector will likely feed into the political debate in the run-up to the 2014 elections, which may increase uncertainties related to the African National Congress' (ANC's) future policy framework. In our opinion, underlying social tensions in South Africa will increase spending pressures and reduced fiscal flexibility for the government. Due to production losses, we now expect GDP growth to soften to not more than 2.5% in 2012 and the current account deficit to increase to at least 5.1% of GDP. Outlook The negative outlook reflects that on South Africa. We would lower the ratings on both entities in the event of a sovereign downgrade. Furthermore, heightened economic risk--either through lower domestic economic growth or increasing political risks--could increase funding and liquidity risks, which would result in a downward revision of our assessment of the bank's SACP. However, as the SACP of FRB is currently above the foreign currency ratings on South Africa, this would not affect its ratings as long as the SACP remains at least 'bbb'. We will maintain the one-notch differential between FRL and FRB, reflecting our view that FRL's status exposes it to potential regulatory impositions and structural subordination. A revision of the outlook on the sovereign to stable would trigger a similar outlook revision on FRB and FRL, all other things being equal. Ratings Score Snapshot Issuer Credit Rating BBB/Negative/A-2 SACP bbb+ Anchor bbb Business Position Adequate (0) Capital and Earnings Adequate (0) Risk Position Strong (+1) Funding and Liquidity Average and Adequate (0) Support 0 GRE Support 0 Group Support 0 Sovereign Support 0 Additional Factors -1 Related Criteria And Research All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated. -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Bank Capital Methodology And Assumptions, Dec. 6, 2010 -- Group Rating Methodology And Assumptions, Nov. 9, 2011 -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 -- Banks: Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 1, 2011 Ratings List Downgraded; Ratings Affirmed To From FirstRand Bank Ltd. Counterparty Credit Rating BBB/Negative/A-2 BBB+/Negative/A-2 Certificate Of Deposit BBB BBB+ Senior Unsecured BBB BBB+ FirstRand Ltd. Counterparty Credit Rating BBB-/Negative/A-3 BBB/Negative/A-2 Ratings Affirmed FirstRand Bank Ltd. Counterparty Credit Rating South African National Scale zaAA/--/zaA-1 FirstRand Ltd. Counterparty Credit Rating South African National Scale zaAA-/--/zaA-1 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.