Absa: We remain strong, despite Fitch downgrade

Fitch downgraded Barclays Africa Group [JSE:BGA] and Absa Bank by one notch, bringing it into line with other major South African banks.

The credit ratings agency downgraded Barclays Africa Group's foreign currency and local currency long-term issuer default ratios to BBB-, from BBB and BBB+ respectively.

The downgrade follows official confirmation from Barclays Group on its intention to sell its 62.3% stake its African unit in a bid to save costs after the UK bank announced net losses more than doubled last year.

"The downgrades reflect Fitch's view that there is a lower support propensity from Barclays for Barclays Africa Group and Absa given the parent's intention to sell its controlling stake in Barclays Africa Group (which fully owns South African domestic bank, Absa) and deconsolidate the subsidiary," Fitch said in a statement.

"Fitch does not exclude the possibility of Barclays providing support to BAGL and/or Absa in case of need while it maintains a meaningful ownership share and management control. However, we consider BAGL and Absa to be of limited strategic importance to Barclays and are unable to fully rely on any potential institutional support from the parent for the subsidiaries' ratings."

Chief economist at Economists.co.za, Mike Schussler told Fin24 the downgrade is not good for Barclays Africa and neither for Absa. "However, it is still a well funded bank and a well managed bank, but shows that the overseas parent was important in bringing down the cost of capital for Absa," he said.

"Absa will have a few more dumps and hills to climb here and there, but overall it will still be a good bank and customers will not find any difference at all. This is a marginal issue and will not have a major impact."

A Barclays Africa spokesperson told Fin24 that is acknowledged the rating change, which puts on par with other major South African banks, having previously been graded above them.

"[It] does not reflect any change in our financial standing and neither will it affect our funding," she assured.

"We remain a strong, well capitalised and independently funded banking group, listed separately on the JSE."

These sentiments were also echoed by CEO Maria Ramos when news broke of Barclays Group’s decision to pull out of Barclays Africa and Absa.

“It’s never easy to go through these changes, but we have strong results, a clear strategy and we are in great shape,” Barclays Africa tweeted its CEO as saying at the time.

The global banker listed as part of its rationale for the sell-down that, despite a strong returns profile locally, Absa's contribution is significantly diluted at Barclays Group level.

The sell-down would mean a cost reduction of about £2bn and a loss of 40 000 jobs from Barclays Group, which carries 100% responsibility with only 62.3% benefits.

Barclays said it intends selling its African business over the coming two to three years, but this is subject to shareholder and regulatory approval.

With over R1trn on Barclays Africa’s balance sheet, Absa customers won’t have to close their bank accounts, the bank indicated.

Source: Fin24