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RTRS-MOODY'S ASSIGNS A2.ZA/P-1.ZA RATINGS TO MERCANTILE BANK LIMITED (SOUTH AFRICA)
22 February 2008
RTRS-TEXT-Moody's release on Mercantile Bank Limited
(The following statement was released by the ratings agency)
Moody's Investors Service has assigned the following national scale issuer ratings to Mercantile Bank Limited ("Mercantile Bank") of South Africa: a long-term rating of A2.za and a short-term rating of Prime-1.za. The ratings reflect the bank's improved financial profile, niche franchise, recovering financial fundamentals, but also Moody's expectation of strong parental support from Caixa Geral de Depósitos (CGD) who owns 92% of the bank.
Following the recapitalisation of the bank in the early part of the decade, when CGD gradually raised its stake from 26% to 92% and a new senior management team was recruited, the bank has followed a steady growth trend, according to Constantinos Kypreos, a Moody's Vice President - Senior Analyst. Risk management processes have been strengthened, its strategic focus was re-assessed, and financials have been steadily improving. The bank is now poised for further growth as it is adequately capitalised with all profits re-invested back into the business; non-performing loans in 2007 dropped to 2.1% of gross loans and are fully covered by provision reserves; profitability has been steadily improving; and the bank still enjoys a relatively stable funding base, with high levels of deposits derived from the Portuguese community.
Mercantile Bank's ratings also incorporate the mismatches in the maturity profile of the bank's assets and liabilities, high credit concentrations and increasingly challenging operating conditions. These factors affect all the banks in South Africa. A further challenge for the bank will be to expand its franchise in a highly competitive market. However, Moody's believes that growth opportunities could arise from closer cooperation with its parent.
Mercantile Bank's national scale issuer ratings also incorporate an uplift derived from Moody's expectation of strong parental support. This is based on CGD's 92% controlling stake in Mercantile Bank and the bank's increasing association with the CGD brand.
Mercantile Bank Limited is headquartered in Johannesburg, South Africa and, as at 31 December 2007, had total assets of ZAR4.7 billion (USD662)
