BIABS - Absa Bank's rating adjustment by Moody's Investor Services ABSA BANK LIMITED (Incorporated with limited liability in South Africa under registration number 1986/004794/06) ("Absa Bank") Bond Issuer Code: BIABS ABSA BANK’S RATING ADJUSTMENT BY MOODY’S INVESTOR SERVICES ("MOODY’S") Notice is hereby given in terms of section 4.25 of the JSE Limited Debt Listings Requirements that Moody’s has on 10 November 2014 downgraded by one notch to Baa2 (stable) from Baa1 (on review for downgrade) the long-term deposit and senior debt ratings of South Africa’s five largest banks; The Standard Bank of South Africa Limited, Absa Bank Limited, FirstRand Bank Limited, Nedbank Limited and Investec Bank Limited in light of the rating review initiated for all the banks on 19 August 2014. Please take note of the following rating adjustments pertaining to Absa Bank: - 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. - The provisional foreign-currency legacy subordinated rating has been downgraded to (P)Baa3 from (P)Baa2, and the provisional junior subordinated EMTN programme rating to (P)Ba1 from (P)Baa3. - The national-scale long-term deposit rating has been downgraded to A1.za from Aa3.za. The following ratings were confirmed: - The bank financial strength rating (“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 rating of P-2, as well as the national-scale short term deposit rating of P-1.za. - The long-term global scale ratings have a stable outlook, while the BFSR has a negative outlook. These ratings downgrades were as a result of 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. Furthermore, the banks’ sizable holdings of sovereign debt securities whose creditworthiness is linked to that of the national government and to a lesser extent the challenges these 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 risks and higher loan impairments for the banks. The stable outlook assigned to all banks therefore appropriately captures the stable outlook on the sovereign rating, while the banks’ lower Baa2 rating reflects the pressures from economic conditions, particularly in light of the banks' earnings and capital buffers. Absa Bank's holdings of sovereign debt securities, at a high 182% of its capital base as of August 2014, constitute the main driver behind its deposit rating downgrade to Baa2 (stable) from Baa1 (on review for downgrade). In view of the correlation between sovereign and bank credit risk, Absa Bank's rating continues to be aligned with the rating of the government. The rating action also reflects the likely pressure on the bank's earnings from the challenging economic conditions. To this end, Moody's notes that the bank's H1 2014 performance included a modest 2% year-on-year increase in profit for the period, despite a 11% decline in loan impairment losses. Although Moody's sees downward pressure on the bank's standalone baseline credit assessment (BCA) of baa2, owing to its weakened capital base and relatively high level of non-performing loans (NPLs), Moody's notes that Absa Bank's deposit and debt ratings carry a stable outlook, in view of the very high parental support assumptions from Barclays Bank Plc. Absa Bank's CET1 ratio decreased to 10.1% in June 2014 from 12.2% in June 2013, which has weakened the bank's capital buffers to absorb loan losses in case of need. This reduction was mainly driven by special dividend payments in 2013-14, which if sustained will limit the bank's internal capital generation. Moody's does not expect any significant increase in Absa Bank's CET1 in the near term and also notes its NPLs ratio of 4.3% as of June 2014, which although down from 5.3% in June 2013, is still higher than its similarly-rated local peers' average ratio of 2.8% as of June 2014 and the global median for banks with a BCA of baa2 of 2.3% as of end-2013. On balance, Moody's said that the stable outlook on Absa Bank's deposit and debt ratings reflect the very high parental support assumptions from Barclays Bank Plc (deposits A2 negative, bank financial strength rating C-/baseline credit assessment baa2 stable) that owns 62.3% of the bank's holding company Barclays Africa Group Limited. Such parental support offsets downward pressure on the bank's deposit and debt ratings stemming from its standalone credit profile. Absa Banks’ credit ratings are available at www.absa.co.za and www.barclaysafrica.com. Johannesburg 11 November 2014 Debt Sponsor Absa Bank Limited (acting through its Corporate and Investment Banking division) Date: 11/11/2014 05:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.