Fitch Ratings has affirmed Absa Group Limited's (ABG) and its main operating subsidiaries, Absa Bank Limited (ABL), (IDRs) at 'BB-'.

The Outlooks are also stable. 

Fitch said the IDRs and National Ratings are driven by the entities' standalone creditworthiness, as expressed by their Viability Ratings (VR) of 'bb-'.

“The VRs reflect ABG's strong regional franchise with diversified earnings, comfortable capital buffers and stable asset quality, funding and liquidity”.

However, the VRs are one notch below the 'bb' implied VRs, reflecting constraints from the operating environment and sovereign.

This, Fitch said, underlines the concentration of their activities in South Africa and high sovereign-related exposure relative to equity. The Stable Outlooks on their Long-Term IDRs reflect that on South Africa's rating.

ABG's and ABL's National Ratings with Stable Outlooks reflect our view that their creditworthiness in local currency relative to that of other South African issuers is unchanged.

Stable Asset Quality

ABG's Fitch-adjusted impaired loans ratio was stable at 6.3% at the end of the first-half of 2022 but remains above that of peers.

“We expect the ratio to remain above 6% for 2022 given operating environment uncertainty but below the level at the height of the pandemic (end-2020: 7.3%). Reserves coverage of impaired loans was broadly stable and in line with peers' at 67% at end-June 2022 (end-2020: 66%).

Improving Profitability: 

ABG's annualised operating profit/risk weighted assets (RWAs) increased to 3.4% in half-year 2022 (2021: 2.9%), well above its pre-pandemic level (2019: 2.5%). This was driven by further margin expansion, a strong recovery in insurance revenue, and well-controlled costs.

ABG's cost/income improved to 55% in half-year 2022 (2021: 59%).

Loan impairment charges will remain high (25% of pre-impairment operating income in half-year 2022) given rising rates and inflationary pressures.

Meanwhile, Fitch withdrew all ratings of ABG and ABL for commercial reasons, adding , “Fitch will no longer provide ratings or analytical coverage of ABG or ABL”.