FIRSTRAND BANK LIMITED
Fitch Ratings has affirmed
The Outlook is Stable.
Fitch has placed FRB's Government Support Rating (GSR) of 'b+' on Rating Watch Negative (RWN), reflecting the expectation that bank resolution legislation will be implemented in
A full list of rating actions is below.
Key Rating Drivers
FRB's IDRs are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of 'bb-'. The VR reflects the bank's solid domestic business profile, strong profitability, comfortable capital buffers to absorb asset-quality risks, and stable funding and liquidity. However, the VR is one notch below the implied VR of 'bb' due to the following constraint: Operating Environment/Sovereign Rating. This underlines the concentration of the bank's activities in
The bank's National Ratings reflect its creditworthiness in local currency relative to that of other South African issuers. They are in line with all other rated banks in the country.
Global Risks to Weigh on Growth: Fitch expects
Strong Domestic Franchise: FRB is the second-largest bank in
Significant Household Lending: Personal lending made up about 47% of loans at FYE22, and largely comprises floating-rate residential mortgages (27% of loans), which are sensitive to rising interest rates. Corporate and commercial lending is well diversified by sector.
Asset-Quality Risks Increase: FRB's Fitch-adjusted impaired loans ratio (Stage 3 loans under IFRS 9) improved to 4.4% at FYE22 from 5.9% at FYE21, supported by fairly high write-offs (1.6% of average loans) and higher loan growth (about 11%). Total loan loss allowance coverage of impaired loans increased to an above-peer-average 91% at FYE22 (FYE21: 82%). However, we expect some weakening in asset-quality metrics in FY23 given the uncertain operating environment, and pressures on households.
Superior Profitability: Profitability rebounded strongly to above pre-pandemic levels in FY22, supported by a 47% fall in loan impairment charges to 15% of pre-impairment operating profit from 30% in FY21 and 51% in FY20. FRB's operating profit/risk-weighted assets ratio is above that of peers, peaking at 4.5% in FY22 (FY21: 3.7%).
Adequate Capitalisation: FRB's common equity Tier 1 (CET1) ratio (excluding unappropriated profits) decreased to 12.2% at FYE22 from 12.9% at FYE21 but was still well above the 8.5% regulatory requirement, and broadly in line with peers. We expect the CET1 ratio to remain above 12% in FY23, supported by strong internal capital generation.
Stable Funding and Liquidity: The bank's Fitch-adjusted loans/customer deposits ratio was stable at 86% at FYE22, which is below pre-pandemic levels and broadly in line with peers. FRB has low foreign funding (FYE22: about 6% of funding) but is reliant on short-term institutional funding, a structural feature of
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
FRB's Long-Term IDR and VR are constrained by
A downgrade of the Long-Term IDR and VR may also result from a material weakening in capitalisation, as indicated by a decline in the CET1 ratio below 10%, which could stem from greater-than-expected asset-quality deterioration or more aggressive shareholder distributions.
FRB's National Ratings are sensitive to changes in its creditworthiness relative to other South African issuers.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of FRB's Long-Term IDR and VR would require a sovereign upgrade while maintaining a healthy financial profile.
The bank's National Ratings are sensitive to changes in its creditworthiness relative to other South African issuers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
FRB's senior unsecured debt is rated in line with its IDRs (or National Ratings) as the likelihood of default on these obligations reflects the likelihood of default of the bank.
FRB's GSR reflects a limited probability of support from the South African authorities, if required, given the bank's systemic importance.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The bank's senior unsecured debt ratings are sensitive to changes in its IDRs or National Ratings.
Once the resolution framework is implemented, Fitch expects to downgrade the GSR to 'no support', reflecting our view that notwithstanding their systemic importance, the South African authorities' propensity to support the banking system will no longer be certain. We do not expect the RWN to be resolved within the next six months.
VR ADJUSTMENTS
The business profile score of 'bb+' is below the 'bbb' category implied score due to the following adjustment reason: business model (negative).
The asset quality score of 'bb-' is above the 'b' category implied score due to the following adjustment reason: underwriting standards and growth (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on FRB, either due to their nature or the way in which they are being managed by FRB.
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