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Fitch Affirms FirstRand at 'BB+'/Stable
December 5, 2017 / 4:40 PM / in 9 days

Fitch Affirms FirstRand at 'BB+'/Stable

(The following statement was released by the rating agency) LONDON, December 05 (Fitch) Fitch Ratings has affirmed FirstRand Bank Limited's (FRB) Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook. All other ratings of the bank have been affirmed. A full list of rating actions is detailed below. KEY RATING DRIVERS IDRs AND VRs FRB's IDRs are driven by the bank's intrinsic creditworthiness, as defined by the bank's Viability Rating (VR) of 'bb+'. The VR is constrained by the South African sovereign rating of 'BB+'. As a leading domestic bank, with significant exposure to the Republic of South Africa through investments and government securities and lending to the public sector, FRB, in our view, cannot be rated above the sovereign. The VR also reflects the bank's strong company profile, including one of the leading corporate and retail franchises in South Africa, branded as Rand Merchant Bank and First National Bank respectively. FRB's business model is diverse, both by segment and geography. FRB has an asset finance subsidiary (Moto-Novo) in the UK and its sister company FirstRand International is in the process of buying UK-based challenger bank Aldermore Plc, which should complement its operations. FRB's VR also reflects solid financial metrics, in particular sector-leading earnings metrics. Strong earnings are driven by healthy margins, predominantly due to the bank's low cost of funding, attributable to a strong deposit franchise. Strong profitability helps to drive the highest regulatory capital ratio in the sector of 15.5% (total capital ratio) at end-June 2017. The Stable Outlook on FRB's Long-Term IDR reflects that on the South African sovereign rating. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating (SR) and Support Rating Floor (SRFs) of FRB have been affirmed at '3' and 'BB-', respectively, which reflects a moderate probability of support from the South African authorities, if needed. We view FRB as a domestic systemically important bank, but the proposed enactment of resolution legislation in South Africa to recapitalise a failing bank makes it more likely that senior creditors would be "bailed in". Fitch continues to factor in a moderate degree of sovereign support propensity, as we believe that the South African authorities are likely to retain the flexibility to provide extraordinary support in the interest of financial stability. NATIONAL RATINGS FRB's National Ratings reflect the bank's creditworthiness relative to the best credit and other entities in South Africa. The National Ratings of FRB have been affirmed as its creditworthiness relative to that of the sovereign and other rated entities has not changed. SENIOR DEBT RATINGS The senior unsecured debt programme ratings of FRB are equalised with its IDRs. Senior debt issued under these programmes is also equalised with its IDRs. Therefore all long- and short-term ratings for these programmes and issues have been affirmed. The National Ratings of FRB's senior unsecured debt programmes are equalised with the bank's National Ratings. Senior debt issued under these programmes are also equalised with the bank's National Ratings. Therefore all long- and short-term ratings for these programmes and issues have been affirmed. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The long-term rating of subordinated debt issued by FRB is one notch below its VR to reflect higher loss severity relative to senior debt. These issue ratings have therefore been affirmed. The National long-term rating of subordinated debt issued by FRB is one notch below the bank's National Long-Term Rating to reflect higher loss severity relative to senior debt. Therefore these issue ratings have also been affirmed. The National long-term ratings of two legacy upper Tier 2 notes issued by FRB are notched three times from the bank's National Long-Term rating to reflect higher loss severity and non-performance risk. This issue rating has therefore been affirmed. RATING SENSITIVITIES IDRs AND VRs FRB's IDRs are sensitive to a change in the bank's VR. An upgrade of the bank's VR is only possible in the event of an upgrade of the sovereign rating. A downgrade of the sovereign rating would result in a corresponding downgrade of FRB's VR and therefore the bank's Long-Term IDR. In addition, FRB's VR is sensitive to sharp deterioration in the bank's domestic operating environment, leading to increasing impairment charges, weaker earnings and erosion of capital. A tightening of liquidity could weaken FRB's credit profile in the event of a sovereign downgrade. SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRF of FRB are sensitive to a change in both the authorities' ability and propensity to support the bank. The former would be indicated by a change in the sovereign rating. The latter is most likely to reflect full implementation of a resolution framework in South Africa accompanied by clear statements of commitment to utilise this framework to resolve troubled banks in all scenarios. NATIONAL RATINGS A change in FRB's National Ratings would result from a change in the bank's creditworthiness relative to the other entities in South Africa. SENIOR DEBT RATINGS The senior unsecured debt programme and issue ratings of FRB are sensitive to a change in its IDRs. The National Ratings of FRB's senior unsecured debt programmes and issues are sensitive to a change in the bank's National Ratings. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The long-term rating of subordinated debt issued by FRB is sensitive to a change in its VR. The National long-term rating of subordinated debt and upper tier 2 notes issued by FRB is sensitive to a change in the bank's National Ratings. The rating actions are as follows: FirstRand Bank Limited Long-Term Foreign Currency IDR affirmed at 'BB+'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'B' Long-Term Local Currency IDR affirmed at 'BB+': Outlook Stable Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB-' Viability Rating affirmed at 'bb+' National Long-Term Rating affirmed at 'AA(zaf)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(zaf)' Senior unsecured long-term rating affirmed at 'BB+' Senior unsecured short-term rating affirmed at 'B' Senior unsecured National long-term rating affirmed at 'AA(zaf)' Senior unsecured National short-term rating affirmed at 'F1+(zaf)' Subordinated long-term rating affirmed at 'BB' Subordinated National long-term rating affirmed at 'AA-(zaf)' Hybrid capital instruments National long-term rating affirmed at 'A(zaf)' Contact: Primary Analyst Andrew Parkinson Director +44 203 530 1420 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Tim Slater Analyst +44 203 530 1791 Committee Chairperson Redmond Ramsdale Senior Director +44 203 530 1836 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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