Moody’s downgrades SA banks
• Ratings agency extends downgrade to financial houses to bring them in line with the country’s sovereign status
The financial services sector has had to bear the sins of the father once again, with Moody’s slashing the ratings of SA’s five largest banks and four insurance companies one notch on Monday night to bring them in line with the country’s rating.
The financial services sector has had to bear the sins of the father once again, with Moody’s slashing the ratings of SA’s five largest banks and four insurance companies one notch on Monday night to bring them in line with the country’s sovereign rating.
In the latest round of downgrades, the ratings agency cut SA’s foreign currency debt to just one notch above junk with a negative outlook, signalling that it could cut the rating further when it is reviewed in a few months’ time.
As rated companies move in lockstep with government’s ratings, Moody’s followed this action with ratings cuts to Standard Bank, FirstRand, Absa, Nedbank and Investec’s longterm and short-term foreign currency deposit ratings.
Moody’s said it expected sub-zero GDP growth this year, significantly below the government’s targets. “These challenging economic conditions, combined with potentially weaker investor confidence, volatility in asset prices, and higher funding costs, will likely pressure banks’ earnings and asset quality metrics going forward, and challenge their resilient financial performance so far,” it said.
Cas Coovadia, MD of the Banking Association of SA, which represents SA’s largest banks, said Moody’s reasons for the downgrade confirmed that policy uncertainty, Cabinet upheavals and a continued lack of strong and ethical leadership on the part of the government had undermined the economy.
“Despite this, SA’s banking system remains fundamentally solid and respected in the world. We are well capitalised and a recent World Economic Forum Global Competitiveness index found the South African banking system the second-most sound in the world,” said Coovadia.
Moody’s also revised its view of the financial strength of Old Mutual Life Assurance SA, Standard Insurance, MMI, and MMI subsidiary Guardrisk, citing their exposure to economic and market conditions in SA. Old Mutual Life and MMI’s ratings remained a notch above the sovereign rating, reflecting their “relatively high” ability to share asset losses with insurance policyholders.
“There is limited direct impact on our business,” said Risto Ketola, MMI’s head of investor relations. “However, it [Moody’s downgrade] has a negative effect on the overall economy, which indirectly impacts our business, since we are not immune to economic changes.”
Old Mutual Life did not respond to questions.
Finance Minister Malusi Gigaba was scheduled to meet with business lobby group Business Unity SA (Busa) on Tuesday to discuss SA’s economy.
The Treasury confirmed the meeting took place. “He is meeting various stakeholders, Busa being one of them, on the current economic climate,” it said.