STANDARD BANK GROUP LIMITED
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
The Outlooks are Stable.
Fitch has placed SBSA's Government Support Rating (GSR) of 'b+' on Rating Watch Negative (RWN), reflecting the expectation that bank resolution legislation will be implemented in
Key Rating Drivers
SBG's and SBSA's IDRs are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VRs) of 'bb-'. The VRs reflect a leading domestic franchise and revenue diversification, acceptable asset quality, strong profitability, and comfortable capital buffers and liquidity coverage. However, the VRs are one notch below the implied VR of 'bb' due to the following constraint: Operating Environment/Sovereign Rating. This reflects the concentration of activities in
The National Ratings reflect the entities' creditworthiness in local currency relative to that of other South African issuers. They are in line with all other rated banks in the country.
VRs Equalised with Group VR: SBG is a non-operating bank holding company (BHC). Its VR is equalised with the group VR of 'bb-', reflecting the consolidated risk assessment of the group, due to moderate double leverage (109% at end-2021) and high fungibility of capital and liquidity. As the main operating entity (63% of group assets at end-1H22), SBSA's VR is also equalised with the group VR.
Global Risks to Weigh on Growth: Fitch expects
Strong Franchise: SBG has a leading domestic franchise through its main operating entity, SBSA, which accounted for 24% of South African banking system assets at end-1H22. SBG has a leading sub-Saharan Africa franchise, with operations spanning 19 other sub-Saharan African countries. Revenue diversification is strong by income stream and geography.
Significant Household Lending: Retail lending represented 41% of gross loans at end-2021. It is concentrated within
Asset Quality Pressures: SBG's impaired loans (Stage 3 loans under IFRS 9) ratio declined to 5.6% at end-1H22 from 6.2% at end-2021 primarily due to write-offs. Fitch expects the ratio to increase moderately over the short term as households contend with challenging economic conditions, including higher inflation and interest rates, and slowing real GDP growth.
Strong Profitability: SBG typically delivers strong profitability, supported by a wide net interest margin (NIM), sizeable non-interest income and loan impairment charges (LICs) that tend to erode only a moderate percentage of pre-impairment operating profits. Operating returns on risk-weighted assets recovered to 2.8% in 2021 from a pandemic-induced low of 1.8% in 2020, reflecting a significant decline in LICs. There was a further increase to 3.2% in 1H22 (annualised) due to a wider NIM and higher non-interest income.
Comfortable Capital Buffers: Regulatory capital ratios have comfortable buffers above required minimums. SBG's common equity Tier 1 (CET1) ratio (excluding unappropriated profits; 12.7% at end-1H22) has been broadly stable in recent years. Pre-impairment operating profit provides a sizeable buffer to absorb potential LICs.
Strong Funding Franchise: The customer deposit base structure is favourable, benefitting from a strong domestic franchise. Depositor concentration is moderate. The funding profile has low levels of dollarisation and reliance on external funding is limited. The liquidity coverage ratio was a high 143% at end-1H22.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The entities' VRs and Long-Term IDRs are constrained by
A downgrade of the VRs and Long-Term IDRs could also result from a material weakening in capitalisation, as indicated by the CET1 ratio declining below 10%, which could stem from greater-than-expected asset-quality deterioration or more aggressive shareholder distributions.
SBG's VR could be notched off the group VR if the BHC's double leverage increases above 120% for a sustained period without clear prospects for moderation.
SBG's and SBSA's National Ratings are sensitive to a weakening creditworthiness relative to other South African issuers.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the VRs and Long-Term IDRs would require a sovereign upgrade while maintaining healthy financial metrics.
SBG's and SBSA's National Ratings are sensitive to strengthening creditworthiness relative to other South African issuers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SBSA's senior unsecured debt is rated in line with its IDRs as the likelihood of default on these obligations reflects the likelihood of default of the entity. As a BHC, SBG's senior unsecured debt is rated one notch below its Long-Term IDR for loss severity, reflecting below average recovery prospects due to a thin qualifying junior debt (QJD) buffer at holding company level.
SBG's subordinated debt is rated two notches below its VR for loss severity, reflecting poor recovery prospects. Criteria including a sufficient QJD buffer are not met for alternative notching.
SBSA's GSR of 'b+' reflects a limited probability of support from the South African authorities, if required, given its systemic importance.
SBG's GSR of 'no support' reflects Fitch's view that government support is unlikely to extend to BHCs due to their low systemic importance and liability structure, including foreign/wholesale funding, which could be politically acceptable to bail-in.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
SBG's and SBSA's senior unsecured debt ratings are sensitive to a change in their IDRs.
SBG's subordinated debt rating is sensitive to a change in its anchor VR.
Once the resolution framework is implemented, Fitch expects to downgrade SBSA's GSR to 'no support', reflecting our view that notwithstanding their systemic importance, the South African authorities' propensity to support the banking system will no longer be certain. We do not expect the RWN to be resolved in the next six months.
VR ADJUSTMENTS
The Business Profile score of 'bb+' has been assigned below the 'bbb' category implied scores due to the following adjustment reason: Business model (negative).
The Asset Quality score of 'bb-' has been assigned above the 'b or below' category implied scores due to the following adjustment reason: Underwriting standards and growth (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg.
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