MERCANTILE LISBON BANK HOLDINGS LIMITED - PRESS RELEASE: RATINGS UPGRADE
MERCANTILE LISBON BANK HOLDINGS LIMITED
(Registration number 1999/000164/06)
A subsidiary company of Caixa Geral de Depositos
Share code: MTL ISIN: ZAE000056537
PRESS RELEASE: RATINGS UPGRADE
MERCANTILE BANK`S CREDIT RATINGS RAISED
Current credit ratings
* Long-term: zaA
* Outlook: Stable
* Short-term: zaA1
CA-Ratings, South Africa`s principal locally owned ratings agency, announces
that it has raised the long-term rating of Mercantile Bank from zaBBB- to zaA
and the short-term rating from zaA3 to zaA1. The rating outlook remains stable.
The long-term rating indicates strong capacity and the short-term rating very
strong capacity to repay liabilties.
Although the establishment of the Mercantile group dates back to 1965,
Mercantile Lisbon Bank Holdings Limited was only formed in 1989. The main
operating company of the group is Mercantile Bank Limited, which is now 91,75%
owned by Caixa Geral de Depositos (Caixa), a universal banking group registered
in Portugal and wholly owned by the Portuguese government.
The Group went through difficult times during the last few years struggling with
asset quality and management problems. Through the efforts of the new management
team and the support from its main shareholder, that raised its interest to
91,75% and injected R555 million cash through a rights issue, the bank was
placed on a sound footing. Continued financial support from CGD is implied based
on the size of its shareholding in the Mercantile Group as well as the recent
commitment demonstrated through the capital infusion following the rights issue.
CGD`s long-term international rating by Standard & Poor`s is A+.
Even though Mercantile Bank is a relatively small bank in the South African
context it offers a full range of banking products and services through the
application of its clearing bank status and foreign exchange licence. The bank
therefore competes with the big four universal banks as well as some of the
foreign banks in the country.
The strategic focus of the bank is to service its retail banking clients through
its 14 branches situated in the larger centres in the country, to offer banking
services to the small and medium sized enterprise segment, to continue with its
alliance banking such as the processing of credit cards, and to offer treasury
and foreign exchange services to support its customers.
The retail customer base has proven to be very loyal to the bank and supported
the bank during the small bank crises in 2002. They provide approximately 60% of
the deposits of the bank.
Loan growth was curtailed during the rehabilitation phase to facilitate
improvement in the quality of the assets. Non-performing loans now display
normal characteristics for South Africa and all the old doubtful loans are fully
provided for.
The reduction in operating costs and the new strategic focus has positioned the
bank to be profitable in the next financial year. Interest earnings from the
larger capital base and expected growth in the loan portfolio coupled with
increased fee income are expected to support the profitability of the bank. The
profitability is however expected to be below average over the medium term.
The bank remains very liquid but this is expected to decline gradually with the
acceleration in asset growth. Even though the capital base is relatively small
at approximately R500 million, the bank is considered very well capitalised with
a capital adequacy of 36%.
3 February 2005
Contact: Leon Claassen and Elizma Brooks
CA RATINGS
PROFESSIONALS IN RISK ANALYSIS
FAX +27 11 442-4236
TEL +27 11 442-4230
PO BOX 87266
HOUGHTON 2041
SOUTH AFRICA
Date: 04/02/2005 08:00:20 AM
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