Fitch affirms SA banks, but drops outlooks to negative

Cape Town - Fitch Ratings on Tuesday announced that it affirmed the long-term issuer default ratings (IDRs) of four banks. However, the agency revised the outlook on all the banks' long-term IDRs to negative from stable.

The banks are Absa Bank Limited (Absa), FirstRand Bank Limited (FRB), Investec Bank Limited (Investec), Nedbank Limited (Nedbank), and Standard Bank of South Africa (SBSA).

The ratings agency also affirmed the long-term IDRs of the bank holding companies, Barclays Africa Group Limited (BAGL), Standard Bank Group Limited (SBG), Nedbank Group Limited (NedGroup) and Investec Limited (IL), at 'BBB-' respectively and revised their outlooks to negative from stable.

Fitch said the the outlook change follows the revision on the outlook of the South African sovereign rating to negative.

"The IDRs of the banks' (and their holding companies) are driven by standalone creditworthiness, as defined by the respective institutions' Viability Ratings (VR).

"The banks' VRs are capped by the South African sovereign rating (BBB-/Negative) due to the majority of their operations being in South Africa and their high exposure to domestic sovereign debt relative to capital."

Fitch said the banks' VRs balance the risks of a weakening operating environment, which has a high influence on all VRs, with still resilient company profiles and strong franchises, through which they hold over 90% of banking assets.

It added it views all banks' business models as diverse, with the benefit of strong management, and robust governance and risk management frameworks.

"These factors underpin sound financial metrics, in particular capitalisation and still healthy earnings generation, which can offset expected rises in loan impairments," Fitch said.

"Although we expect absolute earnings to continue to rise, we believe that growth will be slower and profitability metrics to decline over the next 12 to 18 months."

Fitch expects sector asset quality to deteriorate moderately in 2017, due to weaker domestic conditions, including slower growth, higher interest rates and rising inflation as well as risks to operations in rest of Africa.

"As a consequence, we expect the industry's impaired loan ratio to rise to around 4% by end-2017, but within tolerable levels for the banks' ratings."

Read Fin24's top stories trending on Twitter: Fin24’s top stories