FIRSTRAND BANK LIMITED - Amendment to the credit ratings of FirstRand Bank Limited

Amendment to the credit ratings of FirstRand Bank Limited

FIRSTRAND BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1929/001225/06)
Company code: BIFR1
(FRB or the Bank)

AMENDMENT TO THE CREDIT RATINGS OF FIRSTRAND BANK LIMITED

Noteholders are referred to the announcement issued by Moody's Investor Services' (Moody's) on
10 November 2014, in which the agency announced that following the lowering of South Africa's
bond rating to Baa2 (stable) from Baa1 (negative) on 6 November 2014, the long-term deposit and
senior debt ratings of the five largest South African banks were downgraded by one notch to Baa2
(stable) from Baa1 (on review for downgrade). The banks' credit ratings remain investment grade
and these rating actions conclude Moody's rating review initiated for these banks on 19 August
2014.

In the announcement, Moody's indicated that the rating actions were driven primarily by (1) the
weakening of the South African government's credit profile, as captured by Moody's downgrade of
South Africa's bond rating to Baa2 (stable) from Baa1 (negative) on 6 November 2014, combined
with the banks' sizable holdings of sovereign debt securities, which link their creditworthiness to
that of the national government; and to a lesser extent by (2) the challenges the banks face in view
of weaker economic growth in South Africa, particularly in the context of consumer affordability
pressures and still-high consumer indebtedness that will likely lead to increased credit risk and
higher loan impairments for the banks.

The stable outlook assigned to all banks' deposit ratings mainly reflects the stable outlook on the
sovereign rating, and the rating agency's views that the banks' lower Baa2 ratings appropriately
capture the pressures from economic headwinds, particularly in light of the banks' earnings and
capital buffers.

Moody's indicated that FRB's deposit rating downgrade to Baa2 (stable) from Baa1 (on review for
downgrade) was mainly triggered by its sovereign debt exposure, amounting to approximately 96%
of its capital base as of August 2014. In view of the correlation between sovereign and bank credit
risk, FRB's rating continues to be aligned with the rating of the government. To a lesser extent, the
rating action also reflects Moody's expectation that the challenging economic conditions will
moderate its earnings growth in the foreseeable future. Although Moody's recognises the Bank's
strong financial performance in the last two years, it expects increased impairments from the Bank's
retail and asset-finance exposures going forward.

Moody's expects FRB to continue to outperform its local peers, leveraging its successful
transactional banking franchise which contributed around 36% of the FirstRand Group's total gross
revenues for the year ended 30 June 2014.

Moody's noted that the Bank's full-year performance as of June 2014 showed a 14% year-on-year
increase in normalised earnings, and that FRB reported the highest profitability ratios amongst its
local peers with a normalised return on equity of 21.9% and a return on assets of 1.51%.

In terms of the stable outlook on the ratings, the rating agency also acknowledges FRB's high overall
provisioning coverage of its NPLs (2.4% as of June 2014) of approximately 87% in June 2014, and its
strongest capital position among its local peers with a CET1 ratio of 13.6% as of June 2014, up from
12.6% in June 2013.

In Moody's view, these financial fundamentals position FRB particularly well amongst the South
African banks to weather the challenges in the economy over the next 12 to 18 months.

SUMMARY OF RATING ACTIONS:

-   The local-currency and foreign-currency long-term deposit ratings have been downgraded to
    Baa2 from Baa1.
-   The provisional foreign-currency senior unsecured EMTN programme rating has been
    downgraded to (P)Baa2 from (P) Baa1, and any issued foreign-currency senior unsecured debt
    has been downgraded to Baa2 from Baa1.
-   The provisional local-currency senior unsecured domestic MTN programme rating has been
    downgraded to (P)Baa2 from (P) Baa1.
-   The national-scale long-term deposit rating and the national-scale senior unsecured programme
    ratings have been downgraded to A1.za from Aa3.za.
-   The provisional local-currency junior subordinated MTN programme rating has been
    downgraded to (P)Ba1 from (P)Baa3, as well as any issued local-currency legacy subordinated
    debt has been downgraded to Baa3 from Baa2 and junior subordinated debt has been
    downgraded to Ba1(hyb) from Baa3(hyb).
-   The national-scale ratings for legacy subordinated debt has been downgraded to A2.za from
    A1.za and the junior subordinated MTN program rating has been downgraded to A3.za from
    A2.za. Any issued national-scale junior subordinated debt has been downgraded to A3.za(hyb)
    from A2.za(hyb).
-   The provisional local-currency Basel III-compliant subordinated debt ratings of the bank's
    domestic MTN programme has been downgraded to (P)Ba1 from (P)Baa3, as well as any issued
    local-currency Basel III compliant subordinated debt been downgraded to Ba1 from Baa3.
-   Foreign-currency subordinated MTN programme rating has been downgraded to (P)Ba1 from
    (P)Baa3.
-   The national-scale ratings for Basel III-compliant subordinated debt, and any issued national-
    scale Basel III compliant subordinated debt been downgraded to A3.za from A2.za.

The following ratings were confirmed:
- The BFSR of C-, although the equivalent baseline credit assessment (BCA) was lowered to baa2
    from baa1.
- The local-currency and foreign-currency short-term deposit ratings of P-2, as well as the
    national-scale short term deposit rating of P-1.za.
- The provisional short-term MTN programme rating of (P)P-2 and national-scale short-term rating
    of P-1.za.
- The commercial paper rating of P-2.
- The BFSR and long-term global scale ratings have a stable outlook.

The full press release is available on Moody's website:
https://www.moodys.com/research/Moodys-downgrades-five-South-African-banks-deposit-ratings-
to-Baa2--PR_311945

Sandton
11 November 2014

Debt Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

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