Reuters logo
Fitch Affirms Nedbank Group Limited and Nedbank Limited at 'BB+'; Downgrades Support Rating
December 5, 2017 / 5:35 PM / in 7 days

Fitch Affirms Nedbank Group Limited and Nedbank Limited at 'BB+'; Downgrades Support Rating

(The following statement was released by the rating agency) LONDON, December 05 (Fitch) Fitch Ratings has affirmed Nedbank Group Limited's (NBG) and Nedbank Limited's (NBL) Long-Term Issuer Default Ratings (IDR) at 'BB+' with Stable Outlook. At the same time, Fitch has downgraded the Support Rating (SR) of NBG to '5' from '4', following the announcement of a clear timeframe of the separation of NBG from its majority parent Old Mutual Plc (BBB/Stable). All other ratings of NBG and NBL have been affirmed. KEY RATING DRIVERS IDRs AND VRs The IDRs of NBG and NBL are driven by the respective entity's intrinsic creditworthiness, as defined by their Viability Ratings (VRs). The VRs are constrained by the South African sovereign rating of 'BB+'. As a major domestic bank, with significant exposure to the Republic of South Africa through investments and government securities and lending to the public sector, NBL, in our view, cannot be rated above the sovereign. Given that NBL forms the major part of NBG (92% of total assets) at end-June 2017 we also view that NBG cannot be rated above the South African sovereign rating. The VRs of NBL and NBG factor in a strong company profile. NBL is the fourth- largest domestic franchise in South Africa, but has a large market share of 19%. The bank has a dominant commercial property franchise, a market in which it holds over 40% of sector lending and comprises 20% of NBG's loan book. The VRs also reflect solid financial metrics. Asset quality is sound, though concentration to property, given NBG's franchise, is high. Earnings are also in line with peers and again sound, with a return on risk weighted assets in excess of 3%. Earnings in 2016 and 1H17 have suffered from NBG's investment (21% stake) in Ecobank Transnational Incorporated (ETI: B/Stable), which was loss-making in 2016. Capitalisation is adequate, though NBG's Fitch Core Capital ratio at end-June 2017 was the lowest in the peer group at 12.7%. We also view funding as slightly weaker than the other "big four" banks. NBG has a higher cost of funding, reflective of its smaller retail franchise and is more reliant on deposits from financial corporates in South Africa, which are typically more expensive and price-sensitive. However, NBG maintains a liquidity coverage ratio well in excess of regulatory requirements at 105% at end-June 2017. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating (SR) and Support Rating Floor (SRF) of NBL have been affirmed at '3' and 'BB-', respectively, which reflects a moderate probability of support from the South African authorities if needed. We view NBL 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 propensity of sovereign support, as we believe that the South African authorities are likely to retain the flexibility to provide extraordinary support in the interest of financial stability. The SR of NBG has been downgraded to '5', reflecting our view that support from Old Mutual can no longer be relied on. We have assigned a Support Rating Floor of 'No Floor' to NBG, as we believe that support for the holding company is now more likely to come from the authorities as opposed to Old Mutual, but that support from the authorities can also not be relied on as we do not believe that sovereign support would extend to bank holding companies. NATIONAL RATINGS The National Ratings of NBG and NBL reflect their creditworthiness relative to the best credit and other entities in South Africa. The National Ratings of have been affirmed as their creditworthiness relative to that of the sovereign and other rated entities has not changed. SENIOR DEBT RATINGS The senior unsecured debt programme ratings of NBL are equalised with its IDRs. Therefore the ratings for these programmes have been affirmed. RATING SENSITIVITIES IDRs AND VRs The IDRs of NBG and NBL are sensitive to a change in their VRs. An upgrade of the VRs 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 both NBG's and NBL's VRs and therefore Long-Term IDRs. In addition, the VRs are sensitive to sharp deterioration in its domestic operating environment. For NBG and NBL, they are specifically sensitive to a large property price correction, leading to increasing impairment charges on their property- backed lending book. However, this is not Fitch's base case. The VRs are also sensitive to a tightening of liquidity given higher reliance on price-sensitive depositors. SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRFs of NBL 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 resolution framework in South Africa accompanied by clear statements of commitment to utilise this framework to resolve troubled banks in all scenarios. As a holding company, there is no upside for NBG's SR and SRF over the rating horizon. NATIONAL RATINGS A change in the National Ratings of NBG and NBL would result from a change in their creditworthiness relative to the other entities in South Africa. SENIOR DEBT RATINGS The senior unsecured debt programme ratings of NBL are sensitive to a change in its IDRs. The rating actions are as follows: Nedbank Group 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 downgraded to '5' from '4' Support Rating Floor assigned at 'No Floor' Viability Rating affirmed at 'bb+' National Long-Term Rating affirmed at 'AA(zaf)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(zaf)' Nedbank 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' 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below