Fitch Affirms Investec Bank Plc at 'BBB-'; Revises Outlook to Stable

(The following statement was released by the rating agency)

LONDON, January 22 (Fitch) Fitch Ratings has affirmed Investec Bank Plc's (IBP) 
Long-term IDR at 'BBB-' and Viability Rating (VR) at 'bbb-'. The Outlook on the 
Long-term IDR has been revised to Stable from Negative. A full list of rating 
actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT

IBP's ratings reflect its intrinsic strength. The ratings consider IBP's 
concentrated, albeit declining, property exposure and weak earnings as the bank 
has dealt with various challenges and the realignment of its business model over 
the past three years. The ratings also consider IBP's acceptable capitalisation, 
stable funding and strong liquidity. 

The revision of the Outlook to Stable reflects Fitch’s opinion that asset 
quality has stabilised and that the tail risks remaining in IBP’s loan book have 
been reduced through provisions and recoveries to the extent that they are 
unlikely to put material pressure on the bank’s capitalisation. While 
profitability remains weak (despite improving sustainability), Fitch does not 
expect any major deterioration of asset quality and considers that IBP’s modest 
but improving earnings should be sufficient to absorb credit losses in the 
medium term.

Despite reducing steadily over the past three years, IBP’s loan portfolio is 
concentrated towards loans collateralised by residential and commercial 
property, which accounted for 32% of the loan book at end-1H14 (FYE11: 46%). 
Exposure to higher risk development and planning, which has been the main source 
of defaults, has also reduced significantly to GBP0.8bn or 10% of the loans at 
end-1H14 (FYE11: 21%). 

Fitch expects gross defaults (NPLs) to reduce as a proportion of gross loans in 
the medium to long term given the focus on higher quality new lending 
(Fitch-calculated end-1H14: 4.3%). Nevertheless, current NPLs could be sticky 
and take some time to work out. Coverage of NPLs by reserves improved slightly 
to 50% at end-1H14, which in Fitch’s opinion makes the bank moderately 
vulnerable to a fall in collateral values. Fitch expects loan impairment charges 
will continue to reduce and will stabilise at 55bp-60bp of gross loans in the 
medium term. Other exposures which could give rise to volatility in earnings 
and/or affect IBP’s Fitch core capital (FCC) ratio include structured credit 
investments of about GBP0.5bn (60% rated ‘A’ or above; equivalent to 35% of FCC) 
at end-1H14 and unlisted equities of GBP242m (18% of FCC). 

RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT

Downward pressure could arise from a material deterioration of IBP’s capital 
position, for example if loan impairment charges are significantly higher than 
expected. Weakening of the bank's liquidity and funding profile could also be 
negative for the ratings.

Upside potential is limited in the short to medium term. Nevertheless, 
elimination of tail risks through further reductions in higher risk exposures to 
property, strengthening of capital and improved and stable profitability would 
be positive drivers.

In November 2013, IBP announced that a number of options were being explored 
with regard to Investec Bank (Australia) Limited, including a possible sale or 
joint venture of its Professional Finance and Asset Finance & Leasing divisions. 
Information on the potential sale value and the use of the proceeds is not yet 
available as the tender process for the transaction has just begun. 

KEY RATING DRIVERS AND SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch does not rely on the possibility of extraordinary support being made 
available to IBP by the UK government in its ratings. Fitch does not expect any 
change in the Support Rating or Support Rating Floor.

KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID 
SECURITIES

Subordinated debt and other hybrid capital issued by IBP are all notched down 
from its 'bbb-' VR in accordance with Fitch's assessment of each instrument's 
respective non-performance and relative loss severity risk profiles. 

In accordance with Fitch's criteria 'Assessing and Rating Bank Subordinated and 
Hybrid Securities', subordinated (lower Tier 2) debt are rated one notch below 
IBP's VR to reflect the incremental loss severity of this type of debt when 
compared with average recoveries.

The junior subordinated debt securities are rated three notches below IBP's VR 
to reflect the incremental loss severity risk of these securities when compared 
with average recoveries (one notch from the VR) as well as high risk of 
non-performance due to the discretionary, albeit often constrained, coupon 
deferral features of this instrument (an additional two notches). 

Their ratings are primarily sensitive to any change in IBP's VR. 

The rating actions are as follows: 

Long-term IDR affirmed at 'BBB-'; Outlook revised to Stable 

Short-term IDR affirmed at 'F3'

VR affirmed at 'bbb-' 

Support Rating affirmed at '5' 

Support Rating Floor affirmed at 'No Floor'

Junior subordinated debt affirmed at 'BB-'

Senior unsecured certificates of deposit affirmed at Long-term 'BBB-' and 
Short-term 'F3'

Senior unsecured EMTN Programme affirmed at Long-term 'BBB-' and Short-term 'F3' 


Subordinated debt affirmed at 'BB+'

Contact: 

Primary Analyst 

Denzil De Bie 

Director

+44 20 3530 1592

Fitch Ratings Limited

30 North Colonnade

London E14 5GN

Secondary Analyst 

Natalia Shakhina 

Analyst

+44 20 3530 1577

Committee Chairperson

James Longsdon

Managing Director

+44 20 3530 1076

Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: 
hannah.huntly@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 
August 2012, 'Assessing and Rating Bank Subordinated and Hybrid Securities', 
dated 5 December 2012, and 'Evaluating Corporate Governance', dated 12 December 
2012; are available on at www.fitchratings.com.

Applicable Criteria and Related Research: 

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Evaluating Corporate Governance 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816192

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ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE.

(Repeat for additional subscribers)

Jan 22 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Investec Bank Plc's (IBP) Long-term IDR at 'BBB-' and Viability Rating (VR) at 'bbb-'. The Outlook on the Long-term IDR has been revised to Stable from Negative. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT

IBP's ratings reflect its intrinsic strength. The ratings consider IBP's concentrated, albeit declining, property exposure and weak earnings as the bank has dealt with various challenges and the realignment of its business model over the past three years. The ratings also consider IBP's acceptable capitalisation, stable funding and strong liquidity.

The revision of the Outlook to Stable reflects Fitchas opinion that asset quality has stabilised and that the tail risks remaining in IBPas loan book have been reduced through provisions and recoveries to the extent that they are unlikely to put material pressure on the bankas capitalisation. While profitability remains weak (despite improving sustainability), Fitch does not expect any major deterioration of asset quality and considers that IBPas modest but improving earnings should be sufficient to absorb credit losses in the medium term.

Despite reducing steadily over the past three years, IBPas loan portfolio is concentrated towards loans collateralised by residential and commercial property, which accounted for 32% of the loan book at end-1H14 (FYE11: 46%). Exposure to higher risk development and planning, which has been the main source of defaults, has also reduced significantly to GBP0.8bn or 10% of the loans at end-1H14 (FYE11: 21%).

Fitch expects gross defaults (NPLs) to reduce as a proportion of gross loans in the medium to long term given the focus on higher quality new lending (Fitch-calculated end-1H14: 4.3%). Nevertheless, current NPLs could be sticky and take some time to work out. Coverage of NPLs by reserves improved slightly to 50% at end-1H14, which in Fitchas opinion makes the bank moderately vulnerable to a fall in collateral values. Fitch expects loan impairment charges will continue to reduce and will stabilise at 55bp-60bp of gross loans in the medium term. Other exposures which could give rise to volatility in earnings and/or affect IBPas Fitch core capital (FCC) ratio include structured credit investments of about GBP0.5bn (60% rated ‘Aa or above; equivalent to 35% of FCC) at end-1H14 and unlisted equities of GBP242m (18% of FCC).

RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT

Downward pressure could arise from a material deterioration of IBPas capital position, for example if loan impairment charges are significantly higher than expected. Weakening of the bank's liquidity and funding profile could also be negative for the ratings.

Upside potential is limited in the short to medium term. Nevertheless, elimination of tail risks through further reductions in higher risk exposures to property, strengthening of capital and improved and stable profitability would be positive drivers.

In November 2013, IBP announced that a number of options were being explored with regard to Investec Bank (Australia) Limited INVPAU.UL , including a possible sale or joint venture of its Professional Finance and Asset Finance & Leasing divisions. Information on the potential sale value and the use of the proceeds is not yet available as the tender process for the transaction has just begun.

KEY RATING DRIVERS AND SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch does not rely on the possibility of extraordinary support being made available to IBP by the UK government in its ratings. Fitch does not expect any change in the Support Rating or Support Rating Floor.

KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by IBP are all notched down from its 'bbb-' VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

In accordance with Fitch's criteria 'Assessing and Rating Bank Subordinated and Hybrid Securities', subordinated (lower Tier 2) debt are rated one notch below IBP's VR to reflect the incremental loss severity of this type of debt when compared with average recoveries.

The junior subordinated debt securities are rated three notches below IBP's VR to reflect the incremental loss severity risk of these securities when compared with average recoveries (one notch from the VR) as well as high risk of non-performance due to the discretionary, albeit often constrained, coupon deferral features of this instrument (an additional two notches). Their ratings are primarily sensitive to any change in IBP's VR.

The rating actions are as follows:

Long-term IDR affirmed at 'BBB-'; Outlook revised to Stable

Short-term IDR affirmed at 'F3'

VR affirmed at 'bbb-'

Support Rating affirmed at '5'

Support Rating Floor affirmed at 'No Floor'

Junior subordinated debt affirmed at 'BB-'

Senior unsecured certificates of deposit affirmed at Long-term 'BBB-' and Short-term 'F3'

Senior unsecured EMTN Programme affirmed at Long-term 'BBB-' and Short-term 'F3' Subordinated debt affirmed at 'BB+'

((Bangalore Ratings Team, Hotline: +91 80 6677 2513 satish.kb@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: satish.kb.thomsonreuters.com@reuters.net))

Keywords: Fitch Affirms Investec Bank Plc at 'BBB '; Revises