09.11.2012 13:07
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FirstRand Bank Limited -- Moody's assigns (P)Baa2 subordinated debt rating to FirstRand Bank's EMTN programme; outlook negative

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.

RATINGS RATIONALE

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.

PRINCIPAL METHODOLGIES

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).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Nondas Nicolaides Vice President - Senior Analyst Financial Institutions Group Moody'sInvestors Service Cyprus Ltd.Kanika Business Centre319 28th October Avenue PO Box 53205 Limassol CY 3301 Cyprus JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Yves J Lemay MD - Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Cyprus Ltd.Kanika Business Centre319 28th October Avenue PO Box 53205 Limassol CY 3301 Cyprus JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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