Moody’s downgrades SA’s top five banks
Economic slowdown triggered move, firm says
FOLLOWING its downgrade of SA’s sovereign credit rating to Baa3 with negative outlook on Friday night, Moody’s Investors Service did the same to SA’s five largest banks on Monday night.
Credit rating agencies conventionally do this because their ratings of corporations is capped by the rating of the country in which they are domiciled.
Besides setting the ratings of Standard Bank, FirstRand, Absa, Nedbank and Investec to SA’s sovereign rating of Baa3, Moody’s cut Standard Bank’s long-term local and foreign currency issuer ratings to junk status (Ba1) from Baa3.
In a statement released yesterday, Moody’s said: “The primary driver for today’s rating downgrades is the challenging operating environment in SA, characterised by a pronounced economic slowdown, and weakening institutional strength that has led Moody’s to lower SA’s macro profile score to ‘ moderate-’ from ‘moderate’.”
“The lower macro profile exerts pressure on the individual factors on banks’ scorecards, and implies that the country’s banks need stronger loss-absorption and liquidity buffers to withstand the headwinds and in order to remain at the same rating levels.”
Moody’s added that it expected GDP growth of only 0.8% in 2017, which is significantly below the government’s target growth.
“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.”
The managing director of the Banking Association of SA, Cas Coovadia, said the downgrades of the five banks were expected, following SA’s sovereign rating downgrade.
In a statement released yesterday, Coovadia said: “The downgrades add further emphasis to the ongoing policy confusion and weak leadership in our country. The downgrades will lower SA’s creditworthiness and make financing harder and more expensive to source, with knock-on effects for all South Africans.”
He added: “SA’s banking system remains fundamentally solid and respected in the world. A clearly articulated, unambiguous government growth strategy will have the wholehearted support of the banking sector.” — BDLive