According to GCR, the ratings reflect SBSA's established franchise value, improving asset quality and performance indicators, and risk appropriate capital cushioning. These are, however, partially offset by the uncertainties surrounding the global economic recovery - given the resultant (indirect) impact of a regression on Africa.
SBSA is funded mainly via customer deposits, and leads the banking industry with a market share of 24.6%. Adding to SBSA's stability is the fact that the bank is adequately capitalised with a capital adequacy ratio of 13.5%, which is well in excess of the central bank's minimum requirements.
Fuelled by an improvement in client debt serviceability, impaired loans decreased by 27% to R25.5bn during 2011. This, coupled with strong loan growth, led to a significant drop in the gross non-performing loans (NPLs) ratio to 4.5% from 7.2% in 2010, with mortgage defaults constituting 74% of NPLs. Arrears coverage increased to 47%, with the remaining exposure covered by the fair value of collateral held.
Furthermore, SBSA's credit loss ratio decreased to 0.8%, while the net NPLs/capital ratio declined to 54% from 75% in 2010.
Net after tax earnings registered growth of 21% for 2011, reversing a three year downward trend. The improved earnings performance was on the back of a reduction in impairment losses booked, cost containment, buoyant loan growth, higher transaction volumes and the reduced cost of liquidity. As such, profitability indicators improved, with the return on average equity and assets improving to 18.4% and 1.1% respectively.
The ratings would be sensitive to any weakening in asset quality indicators, long-term earnings, or a material reduction in capital from current levels. Other pressure points include the impact of new regulations, especially Basel III, on banks' business and operational models over the medium term. SBSA's ratings are currently at the industry ceiling for banks in South Africa.
