Un­fazed by down­grades

Moody’s hits Stan­dard Bank, FirstRand, Absa, Ned­bank, and In­vestec

The Star Early Edition - - COMPANIES - Ka­belo Khu­malo

JSE-LISTED South African fi­nan­cial ser­vices com­pa­nies yes­ter­day largely shrugged off the down­grades by rat­ing agency Moody’s In­vestors Ser­vice on Mon­day night, which saw some of the sec­tor’s com­pa­nies down­graded by one notch above “junk” sta­tus.

Among South Africa’s banks down­graded were Stan­dard Bank, FirstRand, Absa, Ned­bank, and In­vestec, while in­sur­ers Old Mu­tual and MMI Hold­ings also saw their credit rat­ings down­graded.

How­ever, the fi­nan­cials stocks on the JSE were up 0.53 per­cent at 3pm led by FirstRand, which saw its share price strength­ened by 1.1 per­cent to R48.12, while Stan­dard Bank’s share price was up 0.75 per­cent to R144.17. Absa’s share price in­creased by 0.53 per­cent to R741.02, while In­vestec’s share price went down 0.54 per­cent to R12.92, with Ned­bank’s share lit­tle moved, de­creas­ing 0.04 per­cent to R213.22. Old Mu­tual’s stock was 0.84 per­cent higher at R29.37, while MMI Hold­ings was up 0.37 per­cent to R32.35

Graeme Körner, a fund man­ager at Körner Per­spec­tive, said that Moody’s de­ci­sion to down­grade some of the fi­nan­cial ser­vices com­pa­nies was un­likely to see a sell-off as the mar­ket had al­ways priced in that even­tu­al­ity af­ter the coun­try’s credit rat­ing was ear­lier down­graded.

“South African banks are some of the most well-run in the world. They have pegged their bal­ance sheets and have a healthy cap­i­tal ad­e­quacy ra­tio. Our fi­nan­cial ser­vices com­pa­nies don’t bor­row much off­shore, some­thing that would hurt them is if we get a sec­ond lo­cal cur­rency credit down­grade,” Körner said.

Ex­po­sure to SOEs

One of the rea­sons ad­vanced by Moody’s for the down­grade of some of the coun­try’s fi­nan­cial ser­vices com­pa­nies was their ex­po­sure to loans granted to state-owned en­ter­prises (SOEs).

“The bank’s high sov­er­eign ex­po­sure, mainly in the form of govern­ment debt se­cu­ri­ties held as part of their liq­uid as­sets re­quire­ment, links their credit pro­file to that of the govern­ment. The top five bank’s over­all sov­er­eign ex­po­sure av­er­ages more than 150 per­cent of their cap­i­tal bases, ac­cord­ing to South African Re­serve Bank’s reg­u­la­tory re­turns as of March 2017,” Moody’s said.

John Ash­bourne, Africa Econ­o­mist at Cap­i­tal Eco­nom­ics, said: “It would be very strange for the banks to hold a higher rat­ing than the govern­ment. Given that the down­grade was driven by the shift in the govern­ment’s rat­ing, it shouldn’t have as much of an im­me­di­ate ef­fect on the banks. The cause of the down­grade wasn’t any­thing di­rectly re­lated to their op­er­a­tions,” he said.

The coun­try’s fi­nan­cial in­sti­tu­tions are well re­garded glob­ally for their sound fi­nan­cial man­age­ment.

PHOTO: SIM­PHIWE MBOKAZI

Moody’s has down­graded five lo­cal banks to just one notch above ‘junk’ rat­ing, but they are among the best-run in the world.

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