Limassol, November 09, 2012 -- Moody's Investors Service has today assigned a provisional (P)Baa2 foreign-currency subordinated debt rating under FirstRand Bank Limited's (FirstRand) updated $1.5 billion EMTN programme.
Foreign-currency subordinated debt issued under the programme would likely be eligible for Tier 2 capital treatment under the new Basel III framework in South Africa. The rating agency has also affirmed the existing provisional (P)A3 foreign-currency senior unsecured debt rating under the same EMTN programme. The outlook on both ratings above is negative.
FirstRand's provisional subordinated debt rating is positioned one notch below the bank's standalone credit assessment of baa1, and does not incorporate any rating uplift from systemic (government) support. Moody's notes that the terms and conditions of the programme do not contain any provisions that require -- at the option of the regulator (South African Reserve Bank -- SARB) -- any issued Tier 2 notes to either be written-off, or converted into common equity (Basel III Non-Viability Requirements). However, if a "Statutory Loss Absorption Regime" is implemented in South Africa retrospectively, so as to apply to any Tier 2 notes issued, those notes would be subject to the provisions of the South African law that implements that regime.
Moody's believes that at present, there is a strong prudential bank-supervisory framework in South Africa, with a commitment from SARB to adopt the Basel III framework from January 2013. The rating agency also believes that a "Statutory Loss Absorption Regime" may be implemented in South Africa at a later stage, further developing the bank resolution framework, similar to the policy initiatives in numerous banking systems, particularly in Europe. As a result, Moody's does not include any uplift from systemic support in FirstRand's (P)Baa2 subordinated debt rating (For more detail, please refer to Moody's special comment entitled "Supported Bank Debt Ratings at Risk of Downgrade Due to New Approaches to Bank Resolution", 14 February 2011).
The provisional (P)A3 foreign-currency senior debt rating that was affirmed under the same EMTN programme is in line with the bank's A3 local-currency long-term deposit rating and incorporates one notch of uplift from systemic support. The uplift reflects the bank's importance to the South African banking system as the third-largest commercial bank. Both provisional ratings assigned to the EMTN programme have a negative outlook, in line with the bank's deposit outlook as well as South Africa's negative outlook, to reflect the downside risks posed to the bank from the slowing economy.
WHAT COULD MOVE THE RATING UP/DOWN
Moody's believes that there is limited scope for any ratings upgrade of either FirstRand's deposit ratings, or the provisional ratings on the senior and subordinated debt. This reflects the downside risks stemming from the challenging economic conditions, despite the bank's strong performance for the year-ending June 2012. FirstRand's rating could be downgraded if (1) its financial performance -- specifically its asset quality and/or earnings indicators -- weaken substantially from their current levels; (2) it faced any funding and liquidity issues; and/or (3) key parts of its franchise and risk management are diminished in any way. The senior unsecured debt rating could also be downgraded if the South African sovereign rating were to be further downgraded from Baa1.
The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
FirstRand Bank Limited is headquartered in Johannesburg, South Africa and at the end of June 2012 had total assets of ZAR675.7 billion ($81.5 billion).
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