Rationale
The ratings on DBSA are based on an equalization with the ratings on the Republic of South
Africa (foreign currency BBB+/Negative/A-2; local currency A/Negative/A-1), reflecting Standard
Poor’s Ratings Services’ opinion that there is an “almost certain” likelihood that the South
African government would provide timely and sufficient extraordinary support to DBSA in the
event of financial distress.
In accordance with our criteria for government-related entities, our rating approach is
based on our view of DBSA’s:
— “Critical” role as the South African government’s primary vehicle for promoting
infrastructure development in the country’s municipal and utilities sectors and in the countries
of the Southern African Development Community (SADC); and
— “Integral” link with the South African government, through 100% ownership and ongoing
government supervision.
Our assessment of “almost certain” extraordinary support is reinforced by demonstrations of
state support. In November 2009, the government provided DBSA with South African rand (ZAR) 15.2
billion (about $2.1 billion) in debt guarantees and it has stated its commitment to increasing
DBSA’s callable capital by an equivalent amount to replace the guarantee.
In our view, DBSA has good capitalization; adjusted total equity plus loan loss reserves
covered 47.7% of customer loans at March 31, 2011. In the past, capital has benefited from
adequate internal capital generation but a lower interest rate environment restrained 2009 and
2010 earnings (which feed into capital reserves). Large lending concentrations represent a
moderate threat to otherwise robust levels of capital, with the top-20 loans accounting for
around 110% of common shareholders’ equity (CSE). Positively, DBSA’s asset quality continues to
improve alongside South Africa’s gradual economic recovery. At March 31, 2011, nonperforming
loans (impaired, 90-day overdue, and restructured loans) accounted for 4.52% of total loans,
down from 5.12% one year earlier.
DBSA is funded through its strong capital position and the international and domestic
wholesale markets. The bank’s public-sector status gives it good access to the capital markets,
although pricing tends to be slightly higher than for South African entities that benefit from a
sovereign guarantee.
Continued…
