Standard & Poor's Ratings Services said today that the firm intention of U.K.-based Barclays Bank PLC (Barclays; AA/Stable/A-1+) to acquire a majority shareholding in Absa Group Ltd. (Absa; not rated), the parent of Absa Bank Ltd. (Absa Bank; BBBpi/--/--), could change the competitive landscape of the South African banking sector.
"If completed, the acquisition of up to 60% in Absa, one of the largest financial services groups in South Africa, would result in the re-entry of Barclays into South Africa and in it becoming the largest international player in the South African banking sector," said Standard & Poor's credit analyst Alise Ross. At year-end 2004, Absa had South African rand (R) 295.8 billion ($52.2 billion at R5.67 to $1) of consolidated assets.
Over the medium term, Absa is expected to benefit from access to the resources and know-how of the greater Barclays group, which should enhance its competitive capabilities and position in the oligopolistic South African banking market. Benefits are likely to accrue in Absa's corporate and merchant banking franchise, but also in the longer term in the creation of a greater combined sub-Saharan franchise, blending Barclay's corporate banking strength with that of Absa's wider retail banking network in the region. Standard & Poor's will continue to monitor the developments in Absa's management and business as they occur.
"The speed of successful integration and ongoing solid support from Barclays may result in future positive rating action for Absa Bank," said Ms. Ross.
The current rating on Absa Bank benefits from the bank's strong retail position in its domestic market, improving revenue diversification, and adequate funding. The rating is constrained, however, by the economic and social challenges of operating in the Republic of South Africa (foreign currency BBB/Stable/A-3, local currency A/Stable/A-1).