SA banks prepare for the worst

The Citizen (Gauteng) - - BUSINESS - Re­nee Bonorchis

Banks are pre­par­ing for the worst when it comes to the threat of an­other down­grade of SA’s debt.

The credit rat­ings of large lenders like Stan­dard Bank, Bar­clays Africa, Ned­bank and FirstRand are in­ex­tri­ca­bly tied to that of SA, where they make most of their profit. Banks also need to hold sov­er­eign bonds for reg­u­la­tory pur­poses, so any in­crease in gov­ern­ment’s bor­row­ing costs im- me­di­ately causes the cap­i­tal the firms need to sup­port lend­ing to be­come more ex­pen­sive.

“FirstRand an­tic­i­pated the down­grades since 2015 and has been work­ing on a num­ber of proac­tive strate­gies to mit­i­gate the im­pact,” said FirstRand’s An­dries du Toit. Th­ese in­clude ad­just­ing credit orig­i­na­tion, and boost­ing liq­uid­ity and cap­i­tal buf­fers.

Pend­ing re­views

At stake for lenders is the credit as­sess­ment on SA’s lo­cal-cur­rency bonds, which ac­count for 90% of gov­ern­ment’s is­sued debt. S&P and Moody’s – both due to an­nounce their lat­est re­views on Novem­ber 24 – still rate rand-de­nom­i­nated debt as in­vest­ment grade.

A change in ei­ther eval­u­a­tion could see SA re­moved from some in­dexes tracked by global in­vestors, trig­ger­ing out­flows and push­ing up bor­row­ing costs. While the rat­ings com­pa­nies could wait un­til af­ter the ANC’s De­cem­ber con­fer­ence, they may be swayed to act sooner af­ter Trea­sury said the bud­get deficit will widen and debt lev­els will climb.

“Banks are cycli­cal in­vest­ments so will be im­pacted by any down­turn as a re­sult of a sov­er­eign down­grade and the re­sul­tant im­pact on the econ­omy and our clients,” said Ned­bank’s Mike Davis. “We have, how­ever, been aware of this risk for a long while and are well pre­pared for such an event should it hap­pen.” –Bloomberg

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.