S&P believes banks will remain stable

Prinesha Naidoo

Standard & Poor’s (S&P) expects the South African banking industry to remain stable in the face of sluggish economic growth and heightened political risks.

The ratings agency, in its latest Banking Industry Country Risk Assessment, said a significant deterioration in local banks profitability or funding profiles is unlikely. “If the banks become more reliant on more volatile funding, or change to a net debtor position, we could lower our assessment.” It downgraded the nation’s banks to sub-investment grade in April 2017 following a sovereign downgrade, spurred by a late-night cabinet reshuffle which resulted in major changes at the National Treasury.

S&P said domestic banks continue to perform well despite low growth and political instability but the sector’s low growth is mimicking that of the wider economy.

It expects real GDP growth to be limited to 1% in 2017 and sees a slight acceleration to an average of 1.5%-2.0% per year over 2018 to 2020.

It flagged households as “the most significant source of risk” for domestic banks due to their high leverage and low wealth levels.

Although household debt-todisposable income fell from 85% in 2008 to 74.4% in 2016, S&P is concerned about the changing nature of leverage from secured residential mortgages to increased unsecured and instalment credit.