Fin24

Standard tops bank credit ratings

2012-09-04 12:19

Johannesburg - Global Credit Ratings (GCR) has affirmed Standard Bank [JSE:SBK] national long- and short-term ratings at ‘AA+(ZA)’ and ‘A1+(ZA)’ respectively‚ currently the highest credit rating accorded to a bank in the country. The rating outlook‚ in turn‚ is stable.

According to GCR‚ the ratings reflect SBK’s established franchise value‚ improving asset quality and performance indicators‚ and risk appropriate capital cushioning.

“These are‚ however‚ partially offset by the uncertainties surrounding the global economic recovery – given the resultant (indirect) impact of a regression on Africa.”

SBK is funded mainly via customer deposits‚ and leads the banking industry with a market share of 24.6% as at FYE11.

“Adding to SBK’s stability is the fact that they (the bank) are adequately capitalised with a capital adequacy ratio of 13.5% as at FYE11 (FYE10: 14.9%)‚ which is well in excess of the central bank’s minimum requirements” explained GCR on Tuesday.

Fuelled by an improvement in client debt serviceability‚ impaired loans decreased by 27% (F10: 1.9%) to R25.5bn during F11. “This‚ coupled with strong loan growth‚ led to a significant drop in the gross non-performing loans (NPLs) ratio to 4.5% from 7.2% in F10‚ with mortgage defaults constituting 74% (F10: 72%) of NPLs.

Arrears coverage increased to 47% (F10: 40%)‚ with the remaining exposure covered by the fair value of collateral held‚” said GCR.

Furthermore‚ SBK’s credit loss ratio (total credit impairment charge‚ as per the income statement‚ as a percentage of average gross loans) decreased to 0.8% (F10: 1.2%)‚ while the net NPLs/capital ratio declined to 54% from 75% in F10.

Net after tax earnings registered growth of 21% for F11‚ reversing a 3 year downward trend. “The improved earnings performance was on the back of a reduction in impairment losses booked‚ cost containment‚ buoyant loan growth‚ higher transaction volumes and the reduced cost of liquidity.

As such‚ profitability indicators improved‚ with the return on average equity and assets improving to 18.4% and 1.1% respectively‚” explained GCR.

According to GCR‚ Liquidity risk is largely mitigated by the bank’s sophisticated liquidity risk management systems‚ in addition to the diversity of its deposit base.

The ratings would be sensitive to any weakening in asset quality indicators‚ long-term earnings (on the back of an uncertain economic environment)‚ or a material reduction in capital from current levels.

Other pressure points include the impact of new regulations‚ especially Basel III‚ on banks’ business and operational models over the medium term. SBK’s ratings are currently at the industry ceiling for banks in South Africa.

*Follow Fin24 on Twitter, Facebook and Google+.