Fitch Ratings has affirmed FirstRand Bank Limited's (FRB) Long-Term Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook.

According to the UK based firm, FirstRand Bank Limited's Issuer Default Ratings (IDRs) are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of 'bb-'.

“The VR reflects the bank's solid domestic business profile, strong profitability, comfortable capital buffers and stable funding and liquidity. However, the VR is one notch below the implied VR of 'bb' due to the following constraint: Operating Environment/Sovereign Rating. This underlines the concentration of the bank's activities in South Africa and high sovereign-related exposure relative to equity of about 3x at the end of half year 2023”, it mentioned.

Furthermore, it said the bank's National Ratings reflect its creditworthiness in local currency relative to that of other South African issuers.

Strong Domestic Franchise

Fitch said FRB is the second-largest bank in South Africa by total assets with a market share of about 21%. It has local operations spread across three separately branded businesses, all with strong market positions.

South Africa is the bank's core market (87% of on-balance-sheet credit risk assets at end-June 2023).

FRB is wholly owned by the listed FirstRand Limited (FRL) and its business profile is supported by sound strategic execution and strong management.

Asset-Quality Risks Increased

FRB's Fitch-adjusted impaired loans ratio (Stage 3 loans under IFRS 9) remained stable at 4.3% at full year 2023 (FYE22: 4.4%), supported by higher loan growth and write-offs.

Total reserve coverage of impaired loans remained adequate at 83% (FYE22: 91%).

“We expect asset-quality vulnerabilities to persist over 2023-2024, particularly in household lending, in the prevailing macroeconomic environment”, the rating agency said.

Superior Profitability

FRB’s profitability remained strong, with an operating profit/risk-weighted assets ratio of 4.1% in 2023 (FY22: 4.5%), above that of peers.

It has been driven by wide margins, still moderate albeit increasing impairment charges and good cost controls.

Fitch added “we expect this core metric to moderate slightly in 2024, primarily due to higher impairment charges and some slowdown in growth”.

Adequate Capitalisation

FRB's common equity Tier 1 (CET1) ratio (excluding unappropriated profits) at 12% at 2023 (FYE22: 12.2%) was comfortably above the 8.5% regulatory requirement, and broadly in line with peers.