Unfazed by downgrades
Moody’s hits Standard Bank, FirstRand, Absa, Nedbank, and Investec
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.
Moody’s has downgraded five local banks to just one notch above ‘junk’ rating, but they are among the best-run in the world.