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.
-- In our view, the sovereign's capacity to provide extraordinary support
to Standard Bank of South Africa Ltd. (SBSA) in case of need has now
diminished. Before the sovereign downgrade, sovereign support had lifted the
rating on the bank one notch above its stand-alone credit profile.
-- We are therefore lowering our unsolicited long-term issuer credit
rating on SBSA to 'BBB' from 'BBB+' and affirming the 'A-2' short-term rating.
-- The outlook remains negative, reflecting that on the Republic of South
Africa.
Rating Action
On Oct. 16, 2012, Standard Poor's Ratings Services lowered the unsolicited
long-term issuer credit rating of Standard Bank of South Africa Ltd (SBSA) to
'BBB' from 'BBB+' and affirmed its 'A-2' short-term rating. The outlook
remains negative.
Rationale
The rating action on SBSA follows the lowering of the ratings of South Africa.
We have removed the one notch of uplift above the bank's stand-alone credit
profile (SACP) of 'bbb', which had stemmed from the likelihood of
extraordinary support from the sovereign in case of need. This follows our
downgrade of 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). The removal of sovereign support reflects our
opinion of the reduced capacity of the South African government to provide
extraordinary support to banks in case of need.
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' future policy framework. In our opinion, underlying
social tensions in South Africa will increase spending pressures and reduce
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.
The ratings on SBSA reflect its 'bbb' anchor, as well as its "strong" business
position, "moderate" capital and earnings, "adequate" risk position, "average"
funding, and "adequate" liquidity, as our criteria define these terms. The
ratings reflect the bank's SACP of 'bbb', despite the bank's "high systemic
importance" and the South African government's "supportive" stance toward the
domestic banking sector.
Outlook
The negative outlook reflects that on South Africa. We would lower the ratings
on SBSA in the event of a sovereign downgrade. Furthermore, heightened
economic risk--either through lower domestic economic growth or increasing
political risks--or worsening industry risks through changing competitive
dynamics or higher funding and liquidity risks could result in a downward
revision of our assessment of the bank's SACP and a ratings downgrade.
We could also lower the ratings on SBSA if the bank's capitalization, measured
by Standard Poor's risk-adjusted capital ratio before adjustments, were to
deteriorate to below 5%, or if the bank's asset quality were to deteriorate
significantly. As we forecast modest loan growth, slow improvement in asset
quality, and stable capital ratios, we consider further SACP movement unlikely
in the medium term.
A revision of the outlook on the sovereign to stable would trigger an outlook
revision on SBSA to stable, provided the bank's financial and business
profiles also remained stable.
Ratings Score Snapshot
Issuer Credit Rating BBB/Negative/A-2
SACP bbb
Anchor bbb
Business Position Strong (+1)
Capital and Earnings Moderate (-1)
Risk Position Adequate (0)
Funding and Liquidity Average and Adequate (0)
Support 0
GRE Support 0
Group Support 0
Sovereign Support 0
Additional Factors 0
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
Ratings List
Downgraded; Ratings Affirmed
To From
Standard Bank of South Africa Ltd. (Unsolicited Ratings)
Counterparty Credit Rating BBB/Negative/A-2 BBB+/Negative/A-2
This unsolicited rating(s) was initiated by Standard Poor's. It may be based
solely on publicly available information and may or may not involve the
participation of the issuer. Standard Poor's has used information from
sources believed to be reliable based on standards established in our Credit
Ratings Information and Data Policy but does not guarantee the accuracy,
adequacy, or completeness of any information used.
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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