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Fitch Ratings has upgraded five South African banks' National Long-Term Ratings to 'AA+(zaf)' from 'AA(zaf)' to reflect an improvement in their creditworthiness relative to the best credits in the country. They are Absa Bank Limited, FirstRand Bank Limited, Investec Bank Limited, Nedbank Limited and The Standard Bank of South Africa Limited.

 

Fitch has taken similar rating actions on the National Long-Term Ratings of four South African bank holding companies, namely Absa Group Limited, Investec Limited, Nedbank Group Limited and Standard Bank Group Limited.

 

Debt ratings (where applicable) have also been upgraded by one notch.

 

This follows Fitch's downgrade of South Africa's sovereign rating to 'BB-'/Negative from 'BB'/Negative on 20 November 2020 and the recalibration of the agency's South African National Ratings scale.

 

National-scale ratings are a risk ranking of issuers in a particular market designed to help local investors differentiate risk. South Africa's National Ratings are denoted by the unique identifier '(zaf)'. National Ratings are not comparable to Fitch's International Ratings or to other countries' National Ratings.

 

A full list of rating actions is detailed below.

 

 

KEY RATING DRIVERS

The upgrades reflect Fitch's view that the South African banks' creditworthiness has improved relative to the best credits in the country, including the sovereign and government-related entities. Aside of sovereign risks, Fitch believes the banks have significant headroom to withstand current pressures on the operating environment.

 

The South African banks' company profiles, management and strategy, and risk appetite remain key strengths. Their capital ratios continue to display comfortable buffers over regulatory requirements and we expect them to remain broadly stable despite current pressures on asset quality and earnings. Furthermore, the banks' solid funding and liquidity profiles benefit from leading domestic franchises, underpinned by large customer-deposit funding bases and limited external funding reliance.

 

The Stable Outlook on all National Long-Term Ratings reflect our belief (1) that the banks' relative creditworthiness to other domestic issuers' is unlikely to change over a one- to two-year period; (2) South Africa's National Rating scale relativities are unlikely to change in the event of a sovereign downgrade.

 

National Ratings assigned to Tier 2 issues are two notches below the issuers' National Long-Term Rating. The National Rating assigned to Absa Group Limited's senior debt is one notch below the issuer's National Long-Term Rating to reflect below-average recovery prospects because of thin qualifying junior debt buffers.

 

RATING SENSITIVITIES

The National Ratings are sensitive to changes in the banks' creditworthiness relative to other South African issuers.

 

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upside to the ratings is unlikely at present, given their already high level. The ratings could be upgraded to 'AAA(zaf)' if the banks continue to perform satisfactorily while other leading domestic issuers experience increased stress.

 

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Downside risks could result from a weakening in the banks' standalone credit profiles, especially any material deterioration in asset quality, profitability and capital if this is not accompanied by a simultaneous weakening in the operating environment and the credit profiles of other domestic issuers.

 

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