| Thu 12 Nov 2009, 13:23 | | NED/NBKP - Nedbank Group and Nedbank Limited - Credit Rating Action by Moody`s |
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NED NBKP
NED NBKP
NED/NBKP - Nedbank Group and Nedbank Limited - Credit Rating Action by Moody`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" or "the group")
NEDBANK LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1951/000009/06
JSE share code: NBKP
ISIN: ZAE000043667
NEDBANK LIMITED - CREDIT RATING ACTION BY MOODY`S
Moody`s Investors Service has taken a number of rating actions on five South
African banks, including the ratings of Nedbank Limited, the 100%-owned
subsidiary of Nedbank Group.
Nedbank Group and Nedbank Limited`s other credit ratings are not affected by
this rating action.
EXTRACT FROM MEDIA RELEASE BY MOODY`S
Moody`s downgrades BFSRs of five South African banks
Moody`s Investors Service has today downgraded the bank financial strength
ratings (BFSR) of five South African banks, including Nedbank Limited. The BFSR
downgrades have also triggered downgrades in the Global Local Currency (GLC)
deposit and debt ratings of four of the banks. The banks` ratings, which
previously carried negative outlooks, now have stable outlooks.
BFSRs downgraded by one notch
These rating actions reflect the impact of deteriorating operating and macro
conditions on the banks` financial fundamentals. Moody`s said that the new
ratings better capture the ensuing slowdown in business growth, more challenging
funding conditions, and overall future prospects for the banks. Although South
Africa`s economy has been quite resilient to the global crisis, weakening
macroeconomic conditions - including an estimated GDP contraction in 2009 of 2%
- is exerting additional pressure on the banking sector`s financial fundamentals
and, specifically, on the banks` asset quality and profitability indicators.
Moody`s notes that the ratio of impaired advances (a proxy to non-performing
loans ("NPLs")) to gross loans has increased from 2.0% in January 2009 to 5.8%
in August 2009, with provision coverage at approximately 30%. The asset quality
deterioration has necessitated a substantial increase in provisioning charges,
which for the five affected banks have more than trebled over the past two
years. Although retail NPLs may be peaking, the corporate NPLs are still
evolving. The banks` earnings generating capability is also affected by slowing
credit growth which has led to a dampening in the growth of both interest and
non-interest income.
Moody`s rating action also captures the challenges faced by South African banks
in their efforts to diversify and lengthen their funding profile. The leading
South African banks have limited dependence on market and foreign currency
funding; however, the significant retail savings disintermediation has led to
some structural funding issues, such as a dependence on wholesale/professional
deposits which is typically for short duration and creates significant
concentrations. Although risks are mitigated by exchange controls which ensure
that rand liquidity is `trapped` in the local banking system, efforts to
diversify and lengthen their funding profile - for example via the
securitisation market or longer-term market funding - have been challenged by
the impact of the global liquidity crisis.
At the same time, however, Moody`s acknowledges that the banks have maintained
adequate liquidity levels while building up their capitalisation ratios (with a
Tier 1 ratio of 10.6% as of August 2009). Adequate capitalisation buffers
increase the resilience of South African banks to withstand possible stress
situations.
Deposit and debt ratings also downgraded
The downgrades of the banks` BFSRs have also impacted their GLC deposit and debt
ratings. The GLC deposit ratings of the `big four` South African banks,
including Nedbank Limited, have been downgraded by one notch, but still each
impute a two-notch uplift from their Baseline Credit Assessment on the basis of
Moody`s assessment of a very high probability of systemic support.
"Ability to support indicator"
Moody`s has also concluded its review of the systemic support indicator for the
South African banking system, as part of its global review of systemic support
indicators for banking systems. Moody`s previously used the local currency
deposit ceiling (LCDC, Aaa in the case of South Africa) as the main input for
its assessment of the ability of a national government to support the nation`s
banks. However, given the effects of the global financial crisis, Moody`s has
recently modified this approach in line with its view that a government`s local
currency debt rating should have a greater weight when considering the
probability of systemic support.
In the case of South Africa, the anchor used for measuring the ability of the
government to provide systemic support is now the government bond rating of A3
plus two notches of uplift, resulting in an A1 input. Moody`s notes that this
"ability to support indicator" captures not only the macroeconomic slowdown and
the government`s structural economic weaknesses, but also our view that the
South African authorities remain committed to preserving a robust and well-
functioning banking system.
The specific rating changes for Nedbank Limited are as follows:
Nedbank Limited
- The BFSR has been downgraded to C- (stable outlook) from C.
- The long-term GLC deposit rating has been downgraded to A2 (stable outlook)
from A1.
- The National Scale Rating has been downgraded to Aa2.za (stable outlook)
from Aa1.za.
- With regard to the bank`s EMTN programme, the foreign currency rating for
senior unsecured debt has been downgraded to A2 (stable outlook) from A1; and
the subordinated notes to A3 (stable outlook) from A2.
- The bank`s national scale debt rating (relating to its domestic medium-term
note programme) for senior unsecured debt has been downgraded to Aa2.za (stable
outlook) from Aa1.za; subordinated notes downgraded to Aa3.za (stable outlook)
from Aa2.za; and Tier 1/Hybrids instruments to A1.za (stable outlook) from
Aa3.za.
Sandton
12 November 2009
For further information please contact:
Markus Borner (Nedbank Group Capital Management),
tel: +27 (0)11 295 8616, email: markusb@nedbank.co.za
Don Bowden (Tier 1 Investor Relations)
tel: +27 (0)21 702 3102, email: don@tier1ir.co.za
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd
Sponsors to Nedbank Limited:
Investec Bank Limited
Nedbank Capital
Date: 12/11/2009 13:23:01 Produced by the JSE SENS Department.
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