Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Standard Bank Group Limited (SBG) and its main operating subsidiary, The Standard Bank of South Africa Limited (SBSA), at 'BB-'.

The UK-based firm also assigned a Stable outlook.

Fitch said SBG and SBSA's IDRs were driven by their standalone creditworthiness, as expressed by their Viability Ratings (VRs) of 'bb-'. The VRs reflect SBG's leading domestic and regional franchise, strong profitability and comfortable capital buffers and liquidity.

However, it said the assigned VRs are one notch below the implied VR of 'bb' due to the following constraint:

Operating Environment/Sovereign Rating

Fitch said this underlines the concentration of activities in South Africa and high sovereign-related exposure relative to capital (222% of SBSA's equity at end of half-year 2023). The Stable Outlooks on the Long-Term IDRs mirror those on South Africa.

The National Ratings reflect the entities' creditworthiness in local currency relative to that of other South African issuers. They are in line with all other rated banks in the country.

Leading Domestic Franchise

SBG has a leading domestic franchise through its main operating entity, SBSA, which accounted for 24% of South African banking system assets at end of half-year 2023.

SBG has a leading sub-Saharan Africa franchise, with operations spanning 19 other sub-Saharan African countries. Revenue diversification is strong by income stream and geography.

Significant Household Lending: 

SBG retail lending represented 40% of gross loans at end half-year 2023.

It is concentrated within South Africa and largely comprises floating-rate residential mortgages extended at high loan/value ratios (90% in 1H23).

Increased Impaired Loans

SBG's Fitch-adjusted impaired loans (Stage 3 loans under IFRS 9) ratio increased to 6.5% at half-year from 5.5% at end-2021 as the effects of high interest rates, higher inflation and severe load shedding fed into the lending book.

“We expect the impaired loans ratio to stabilise by end-2023”.

Strong Profitability

It said strong profitability is supported by a wide net interest margin, large non-interest income and moderate loan-impairment charges.

Operating returns on risk-weighted assets rose to 3.5% in 2022 from 2.8% in 2021, underpinned by wide net interest margins.

Strong Funding Franchise

Fitch-adjusted customer deposits represent the main source of funding (74% at end-1H23).

“Depositor concentration is fairly high but behavioural stability benefits from a leading domestic franchise. We consider liquidity coverage healthy”, Fitch noted.