Overview
-- On Oct. 12, 2012, we lowered the long-term foreign currency sovereign
rating on the Republic of South Africa to 'BBB' from 'BBB+' and the long-term
local currency rating to 'A-' from 'A'. We also lowered the short-term local
currency rating to 'A-2' from 'A-1' and affirmed the short-term foreign
currency rating at 'A-2'. The outlook remains negative.
-- We are therefore lowering the long-term rating on FirstRand Bank Ltd
(FRB) to 'BBB' from 'BBB+' and the long- and short-term ratings on FirstRand
Ltd. (FRL) to 'BBB-/A-3' from 'BBB/A-2'.
-- At the same time, we affirmed the South Africa national scale ratings
on both entities, following the revision of the mapping guidance for the South
Africa national rating scale following the sovereign downgrade.
-- The negative outlook on both entities reflects the negative outlook on
South Africa.
Rating Action
On Oct. 16, 2012, Standard Poor's Ratings Services lowered the long-term
rating on FirstRand Bank Ltd. (FRB) to 'BBB' from 'BBB+' and affirmed the
'A-2' short-term rating. We also lowered the long- and short-term ratings on
FirstRand Ltd. (FRL), the nonoperational holding company, to 'BBB-/A-3'
from 'BBB/A-2'. The outlook on the two entities is negative.
At the same time, we affirmed the South Africa national scale ratings on FRB
at 'zaAA/zaA-1' and on FRL at 'zaAA-/zaA-1' following the revision of the
mapping guidance for the South Africa national rating scale following the
sovereign downgrade.
Rationale
The rating actions on FRB and FRL follow the lowering of the long-term foreign
currency ratings on South Africa (see "South Africa FC Long-Term Rating
Lowered To 'BBB'; LC Ratings Lowered To 'A-/A-2'; Outlook Remains Negative,"
published on RatingsDirect on Oct. 12, 2012). While the stand-alone credit
profile (SACP) of FRB remains at 'bbb+', which is above the foreign currency
sovereign credit rating, the ratings on the bank are capped by the sovereign
rating. We do not rate South African banks above the sovereign foreign
currency ratings because of the direct and indirect effects the sovereign in
distress would have on a bank's operations.
Due to its status as a nonoperational holding company, we rate FRL one notch
below the issuer credit ratings on FRB. This reflects FRL's reliance on
dividends from operating companies to meet its obligations, which exposes the
entity to potential regulatory impositions and structural subordination.
The lowering of the sovereign ratings reflects our opinion that strikes in
South Africa's mining sector will likely feed into the political debate in the
run-up to the 2014 elections, which may increase uncertainties related to the
African National Congress' (ANC's) future policy framework. In our opinion,
underlying social tensions in South Africa will increase spending pressures
and reduced fiscal flexibility for the government. Due to production losses,
we now expect GDP growth to soften to not more than 2.5% in 2012 and the
current account deficit to increase to at least 5.1% of GDP.
Outlook
The negative outlook reflects that on South Africa. We would lower the ratings
on both entities in the event of a sovereign downgrade. Furthermore,
heightened economic risk--either through lower domestic economic growth or
increasing political risks--could increase funding and liquidity risks, which
would result in a downward revision of our assessment of the bank's SACP.
However, as the SACP of FRB is currently above the foreign currency ratings on
South Africa, this would not affect its ratings as long as the SACP remains at
least 'bbb'.
We will maintain the one-notch differential between FRL and FRB, reflecting
our view that FRL's status exposes it to potential regulatory impositions and
structural subordination.
A revision of the outlook on the sovereign to stable would trigger a similar
outlook revision on FRB and FRL, all other things being equal.
Ratings Score Snapshot
Issuer Credit Rating BBB/Negative/A-2
SACP bbb+
Anchor bbb
Business Position Adequate (0)
Capital and Earnings Adequate (0)
Risk Position Strong (+1)
Funding and Liquidity Average and Adequate (0)
Support 0
GRE Support 0
Group Support 0
Sovereign Support 0
Additional Factors -1
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
Portal, unless otherwise stated.
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010
-- Group Rating Methodology And Assumptions, Nov. 9, 2011
-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
-- Banks: Banking Industry Country Risk Assessment Methodology And
Assumptions, Nov. 1, 2011
Ratings List
Downgraded; Ratings Affirmed
To From
FirstRand Bank Ltd.
Counterparty Credit Rating BBB/Negative/A-2 BBB+/Negative/A-2
Certificate Of Deposit BBB BBB+
Senior Unsecured BBB BBB+
FirstRand Ltd.
Counterparty Credit Rating BBB-/Negative/A-3 BBB/Negative/A-2
Ratings Affirmed
FirstRand Bank Ltd.
Counterparty Credit Rating
South African National Scale zaAA/--/zaA-1
FirstRand Ltd.
Counterparty Credit Rating
South African National Scale zaAA-/--/zaA-1
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
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