Fitch Ratings has upgraded Nedbank Limited's and Nedbank Group Limited's (Nedbank) Viability Ratings (VR) to 'bbb+' from 'bbb'. At the same time‚ the Long-term IDRs of both entities were upgraded to 'BBB+' from 'BBB'. The Outlooks on the IDRs are Negative.
The upgrade of Nedbank's and Nedbank Limited's ratings reflects Fitch's view that these entities' credit profiles have converged with peers. This is in line with a trend across the four major South African banks of improving asset quality‚ lengthening funding profiles and acceptable levels of capital which are consistent with a 'bbb+' VR‚ the rating agency said on Thursday.
The five major banks' (including Investec) strong franchises support resilient earnings through the cycle. None of the South African banks reported losses throughout the financial crisis‚ with returns-on-equity dropping to around 12 percent at the lowest point in the cycle‚ Fitch noted.
“The Negative Outlooks on the Long-term IDRs of FirstRand Bank Limited (FirstRand)‚ Investec Limited (Investec)‚ Investec Bank Limited (Investec Bank)‚ Nedbank‚ Nedbank Limited‚ Standard Bank Group (SBG) and The Standard Bank of South Africa Limited (SBSA) reflect their potential vulnerability to weakening of asset quality‚ long-term earnings in an uncertain economic environment and a reduction in capital. The IDRs of these banks could be negatively sensitive to a downgrade of the South African sovereign as this could indicate a weakening of the operating environment. Absa Group Limited's (Absa) and Absa Bank Limited's (Absa Bank) IDRs are on Stable Outlook in line with 55.5 percent-parent‚ Barclays Bank Plc (Barclays‚ 'A'/Stable).
“The four major banks (Absa‚ FirstRand‚ Nedbank and SBSA) now all have 'bbb+' VRs which would be sensitive to any weakening in asset quality indicators‚ long-term earnings in an uncertain economic environment or a material reduction in capital from current levels. The latter could occur following special dividend payments or loan growth outstripping the internal capital generation of the banks over time. Upward potential for the ratings is limited in light of a weakening sovereign and operating environment. If the VRs of FirstRand‚ Nedbank‚ Nedbank Limited‚ SBG or SBSA were to be downgraded‚ the IDRs of these institutions would also be downgraded as they are driven by the banks' intrinsic strengths‚” Fitch said.
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