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Nedbank Group And Nedbank - Credit Ratings Action From Standard & Poor’s
NEDBANK GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
(“Nedbank Group”)
NEDBANK LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1951/000009/06
JSE share code: NBKP
ISIN: ZAE000043667
(“Nedbank”)
NEDBANK GROUP AND NEDBANK - CREDIT RATINGS ACTION FROM
STANDARD & POOR’S
On Monday, 10 December 2012, Standard & Poor's Ratings
Services issued a media release statement assigning its
‘BBB/A-2’ long- and short-term counterparty credit rating
to Nedbank. This rating is in line with the rating for
FirstRand Bank Limited and Standard Bank of South Africa
Limited. Standard and Poor’s also assigned its ‘zaAA/zaA-
1’South Africa national scale ratings and a negative
outlook on the ratings reflecting that of the South
Africa sovereign rating.
Following the assignment of Nedbank’s ratings at the same
level as the previous unsolicited rating of Nedbank
Group, Standard & Poor’s has affirmed and withdrawn its
BBBpi (public information) ratings of the group as this
has been replaced by the assignment of ratings to
Nedbank.
Nedbank Group’s Chief Executive, Mike Brown, said
“Nedbank Group has continued to strengthen all aspects of
its balance sheet and we are well-positioned to weather a
tough economic environment. Our coverage ratios are
amongst the highest in the industry. At 29 October 2012,
the group’s common equity tier 1 improved to 10,7% and
the group’s funding position also remains solid.”
The ratings score snapshot is provided at the end of this
announcement.
MEDIA RELEASE BY STANDARD & POOR’S
South Africa-Based Nedbank Limited Assigned 'BBB/A-2'
Ratings; Outlook Negative
Rating Action
On Dec. 10, 2012, Standard & Poor's Rating Services
assigned its 'BBB/A-2' long- and short-term counterparty
credit ratings to South Africa-based Nedbank Ltd. The
outlook is negative. We also assigned our 'zaAA/zaA-1'
South Africa National Scale ratings to the bank.
Rationale
The ratings on Nedbank Ltd reflect its 'bbb' anchor, as
well as its "adequate" business position, "adequate"
capital and earnings, "adequate" risk position, "average"
funding, and "adequate" liquidity, as our criteria define
these terms. The ratings reflect the bank's stand-alone
credit profile (SACP) of ’bbb’.
Nedbank is the fourth-largest bank operating in the
highly concentrated and competitive South African banking
sector, where the top-five banks account for more than
90% of total assets. In our opinion, the industry
structure creates high barriers to entry, benefiting the
business stability of leading banks. Nedbank is the
largest operating entity within the Nedbank Group,
contributing approximately 95% of loans and assets, and
90% of revenues at 30 June 2012. Nedbank has a large
franchise and good market position, with good
diversification from its various business lines, leading
to strong business stability. The group is managed by a
strong and well-established management team that is
focused on improving profitability, asset quality, and on
building capital.
The bank’s capitalization is adequate, while its earning
capacity is high. We expect Nedbank’s Standard & Poor's
risk-adjusted capital ratio before adjustments to reach
around 7% over the next 18-24 months. In our opinion, the
bank’s focus on building capital, supported by a strong
earnings capability, during a period of low-risk asset
growth will improve internal capital generation. Nedbank
intends to build capital over the next 12 months to
provide an early cushion for the Basel 3 minimum capital
requirements set by the South African Reserve Bank. If we
came to view the difficult operating environment as a
restraint on profitability, or if internal capital
generation were to face significant pressure, we could
change our assessment of capitalisation and earnings to
“moderate” in the medium term.
Nedbank’s asset quality is adequate and continued to
improve in the first half of 2012. We expect gradual
improvement in the asset quality of the bank over the
next two years, if economic growth improves and clients
continue to be attracted to the affordable low-interest-
rate environment. Nevertheless, Nedbank’s asset quality
(as for peers') remains exposed to the uncertainties of
the domestic real estate market. Nonperforming loans
represented 4.4% of total loans at June 30, 2012.
Although higher than peers, and in the context of
relatively strong real estate backed collateral claims,
coverage by provisions was a moderate 53% on the same
date.
Nedbank is exposed to the same structural funding and
liquidity issues as its domestic peers. This means that
the bank has short-term and concentrated funding from
corporate and institutional investors. These risks are
mitigated by the closed rand system, the dominance of the
top tier banks in clearing and settlements, and low
dependence on external funding.
Outlook
The negative outlook on Nedbank reflects that on the
sovereign. We would lower the ratings on Nedbank in the
event of a sovereign downgrade as we do not rate any bank
in South Africa above the foreign currency ratings of the
sovereign. Similarly, a revision of the outlook on the
sovereign to stable would trigger an outlook revision on
Nedbank to stable, provided that the bank’s business and
financial profiles remain stable.
Given the bank’s stable business profile and improving
capitalization, and the potential for government support,
we believe that there is limited pressure on the ratings
on the bank in the medium term outside a sovereign
downgrade.
Nedbank is a 100%-owned operating subsidiary of Nedbank
Group and is 51.9%-owned by Old Mutual Life Assurance
Company (South Africa) Limited and its associate
companies. Nedbank comprises five core business clusters
- Nedbank Capital, Nedbank Corporate, Nedbank Retail,
Nedbank Business Banking and Nedbank Wealth.
Ratings score snapshot:
NEDBANK LIMITED
Issuer Credit Rating: BBB/Negative/A-2
Stand-alone credit profile (SACP): bbb
- Anchor: bbb
- South African National Scale: zaAA/zaA-1
- Business Position: Adequate (0)
- Capital and Earnings: Adequate (0)
- Risk Position: Adequate (0)
- Funding and Liquidity: Average and adequate (0)
Support
- GRE Support: 0
- Group Support: 0
- Sovereign Support: 0
- Additional Factors: 0
Sandton
10 December 2012
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Sponsors to Nedbank Limited:
Investec Bank Limited
Nedbank Capital
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd
Date: 10/12/2012 02:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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