GCR affirms Investec Bank Limited’s rating of AA-(ZA); Outlook Stable
Global Credit Ratings (GCR) has affirmed Investec Bank Limited’s (IBL) national scale ratings of AA-(ZA) and A1+(ZA) in the long term and short term respectively; according a Stable outlook. Furthermore, GCR has affirmed the international scale rating assigned to IBL of BBB, according a negative outlook.
Omega Collocott, Head: Financial Institution Ratings at GCR, says the ratings accorded to IBL reflect its established and streamlined business model, niche client base and markets, diversified and increasingly recurring earnings, improving asset quality and performance, and comfortable capital and liquidity levels. However, note is taken of South Africa’s deteriorating consumer and corporate environments, to which IBL is exposed despite its select clientele and highly collateralised loan book.
“IBL is a major operating subsidiary of the Investec Group which had consolidated equity capital of GBP 3.5 billion and assets of GBP 44.4 billion at FYE15. IBL is the fifth largest South African bank, accounting for 7.5% of banking industry assets/deposits at 30 June 2015. This compares to South Africa’s four largest banks, which each command a market share in the 16-25% range,” says Collocott.
The bank’s 17.2% loan growth, funded primarily by retail deposits, in line with a strategy to attract stable funding, has driven performance while supporting fulfilment of future regulatory compliance metrics.
Collocott says IBL is well capitalised at current risk levels. The bank's risk-weighted capital adequacy ratios (CAR) increased in F15, with Tier 1 and total CAR of 11.4% and 15.4% at FYE15 respectively, compared to 10.8% and 15.3% at FYE14 respectively. Collocott says this is despite some Tier 1 and 2 instruments being phased-out under the Basel III capital requirements, as currently applicable in South Africa. Liquidity and balance sheet risk profiles were strictly controlled, with key risk categories maintained well within internal and regulatory targets.
“Opportunities in selected markets, strong credit practices and controlled loan growth have reduced IBL’s FYE15 gross default ratio to 2.1% (FYE14: 2.3%). Furthermore, core impaired loans rose slightly to R3.7 billion at FYE15, driven by higher non-performing loans (NPLs) in some corporate books,” Collocott says.
She adds that the bulk of IBL’s NPLs (74.9%) related to Private Banking, concentrated in a few property-collateralised exposures and provisions plus collateral fully cover arrears.
Pre-tax earnings grew by a high 49.0% in F15, supported by strong loan and net interest income growth, stable margins on funded income, significant gains in investment portfolios, and moderating impairment charges. The bank’s Return On average Assets (ROaA) and Return On average Equity (ROaE) increased to 1.0% (F14: 0.7%) and 11.5% (F14: 8.8%) in F15, respectively.
“Evidence of an enhanced support structure/environment, and meaningful market positions in key activities, could have a positive impact on the rating. The ratings reflect the bank’s through-the-cycle resilience and proactive risk management, solid capital levels and profitability, and diversified funding. A significant deterioration in IBL’s asset quality, long term earnings, funding and liquidity profile, as well as in capital ratios, could lead to negative rating action,” Collocott concludes.
