Limassol, December 11, 2012 – Moody’s Investors Service has today downgraded the long term national issuer rating of Mercantile Bank Limited (Mercantile Bank) by two notches to Baa3.za from Baa1.za, and also downgraded the bank’s short term national scale rating by one notch to Prime-3.za from Prime2.za.
Concurrently, Moody’s changed the outlook on Mercantile Bank’s ratings to negative from stable, in line with the parent bank’s standalone rating outlook.
Moody’s said that the downgrade and negative outlook reflects the level of interconnectedness between Mercantile Bank’s overall risk profile and that of its parent bank CGD (100% shareholder), and the risk that any deterioration of CGD’s creditworthiness could elevate the level of stress within the group and ultimately present contagion risks for Mercantile Bank. This reflects Moody’s opinion that the standalone credit quality of parent banks and their subsidiaries are typically linked. Specifically, Moody’s considers that the risk contagion from parent to subsidiary can never be wholly mitigated. Accordingly, the rating agency notes that Mercantile Bank’s downgrade is solely driven by the downgrade of its parent bank CGD and that, apart from the aforementioned contagion risks stemming from the parent, its underlying financial fundamentals remain sound.
Last Update: 06/04/2011